Trading Habits: 39 of the World\'s Most Powerful Stock Market Rules pdfdrive com

Rule 28 – 39

---

The Keys to Profitability
28. Manage losses and maximize gains.
All your trades should end in one of four ways: a small win, a big win, a small
loss, or break even. You should never experience a big loss. If you can get rid of
big losses, you have a great chance of being profitable for years to come.
Traders just starting out often discover that big losses are the one thing that hurt
their overall long term returns the most. If those few big losses were removed,
their returns would go up dramatically. The fastest way to improve your trading
returns is to immediately stop having the few big losses that force you to give
back weeks, and sometimes months of winning trading profits.
The use of a stop loss on every trade is the one thing that can stop you from
having huge losses. A stop loss is the cost of insurance you pay to avoid being
caught on the wrong side of a large market trend. It may be frustrating to have a
small loss, then the market reverses and goes in your direction. However, it is
still better to insure that you have a small loss than risk a big one.
Stop losses should be placed at a price level that will not be easily reached
unless your trade is not going to work out. Stop losses should be placed outside
the range of normal price action and out of the reach of ‘noise’. When you enter
a discretionary trade, find the spot where you say “If price gets to this level, then
I am probably wrong about the direction.”
Trailing stops help you maximize gains by raising your stops as a winning trade
trends in your direction. In strong trends, the 5 day EMA or 10 day SMA can be
an excellent end of day stop if price closes below these levels.
Get in the habit of knowing where your stop loss will be before you enter a
trade. Small losses is one of the primary ways to experience profitable trading.

---