Format for Trading – Your Comprehensive Guide to Master Your Loss Position – Part 1

1. If your trade is in a profit position, at that point in time you are right. If your trade is in a loss position, at that pointing time you are wrong. If you are wrong the only question is “how long will you be wrong?” The only answer is that you will be wrong until the position moves into a profit or until your stop is hit. It is that simple. If you are wrong, there are only two ways you can be more wrong than you already are. One is to add to your wrong position. The second way is to move a stop in the opposite direction of your trade.

2. Before you ever enter a trade, decide in advance how long you are willing to be wrong. Another way of saying it, “How much am I willing to lose on this trade?” This decision must be made before you enter the market because an objective decision can only be made before you enter the market. Once you are in the market you are no longer objective. You have taken a position, made a commitment, and an element of hope is now fighting against your cool and calculated objectivity. There is no such thing as a mental stop. A stop is not a stop until it is placed in the market.

3. The only time you will be tempted to move a stop in the opposite direction of the trade is when the trade is in a loss position and the market is moving against you. By definition, at this point in time you are wrong. The second way that you can be more wrong than you already are is to move your stop so that you can lose more money on the trade.

4. Remember, the last time you were truly objective was before you entered the trade when you decided on your stop. If you move a stop, then the element of hope has completely overcome your cool calculated objectivity and you are no longer able to function as a rational trader. Fear can serve a useful purpose. Greed can be a hindrance. But hope, when it becomes predominate, leads to disaster.

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