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The Importance of Losing Small

Losses are inevitable, but small losses are easily overcome.

I put that first because if you don’t read anything else here, I want you to be sure and see that.

In fact, that one statement could be considered the key to my trading.  I remind myself of it often, and when I’m staying disciplined, I am able to see it in action.small [1]

Take Monday for example.  I took several trades…7 to be exact.  I made money on only 2 of them (no, it wasn’t a great day), and yet my net P&L was only slightly red.  Just a little bit negative – that’s all.  It was a down day for me, and yet it was about as painless as they come.  A minor loss.  All because I was able to recognize quickly when I was wrong, and immediately focus on damage [2] control [3].

The trading landscape has changed dramatically just in the past year.  The market is moving differently, the stocks which are in focus are a different group, and there are even some new fees and rules making their way into the fray.  Nonetheless, there is still one constant: the trader who is able to lose small is able to stay in the game.  He’s able to survive, which means he’s able to profit.  And that of course means he’s able to thrive.

Two Big Benefits

Keeping those inevitable losses at a minimum carries with it a pair of huge benefits…

First, when you’re wrong, the damage is far from devastating.  Falling off a pony compared to falling off a Clydesdale sure makes it easier to get up and get back on that horse.  And trading is all about getting back up [4].  It’s an attitude [5] thing.  It’s important to stay in the game, and that means an occasional bump or bruise is far easier to overcome than the occasional amputation.  The point is this – protecting the downside [6] offers you a safety net [7] to fall into.  Why not use it?

Second, confidence stays high, and that’s a major factor for a successful trader.  Confidence should be protected [8] just as vigilantly as one’s capital, for it can be considered your psychological capital [9].  Just as money isn’t easily replaced, confidence isn’t quickly replenished once it’s wrecked.  Looking out for yourself by way of small and limited losses means you’re taking no big hits to your trading account or your psyche.

So on those days when you’re just not feeling it and you feel a step or two behind, be quick to recognize it and live to fight another day.  Keep the damage minimized, and you’ll be able to return tomorrow fully prepared to erase that small deficit quickly.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com [10]

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

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