My ‘Don’t Be a Monkey [1]‘ post prompted some discussion on how to view losses, so I just want to explore that idea a little further. Specifically, Eric commented ‘learn to love loss, and you are on your way.’
Love might not be my chosen word for it, but yeah, that’s the idea. Put it this way…
Last year, we were house hunting with our realtor. When we’d pull up in front of a house that just wasn’t at all our style, we’d offer a preventive “next” to save us all the time of going through a house we just didn’t envision actually buying.
You can’t judge a book by its cover, but some houses you can! Plus, this was a close friend, so he didn’t mind. In fact, he appreciated it. By crossing those no-way houses off our list, it narrowed the search and saved him time.
Couldn’t you view your trades that same way? You could even look at each position as an employee. Poor performance is grounds for dismissal. Take the attitude of “thanks for letting me know you aren’t going to work so I can move on to the next candidate.”
When your trade’s showing you poor price action, don’t get upset. That just might be a gift – a signal to move on to the next idea. No point in getting your feathers ruffled or making it personal. That will only compound your frustration.
In our member area [2], I’ve been trading the exact same way. Booking some winners here and losses there, playing the numbers game that trading always is. No single trade carries great importance, but it’s important that losses are viewed properly. A failed breakout or a sluggish move away from a key area means the trade is suspect and may require an adjustment or early exit. I appreciate those warnings from the price action.
And even when in a position, I’m taking note of those subtle changes of character [3], staying aware of signals the price action may be sending which suggest the trade is struggling.
Recently I entered ADTN upon a breakout attempt at $34, but it just couldn’t stick. A few attempts to clear that level continued to show hesitation, so I tightened my initial stop by 2% on 11/16. I’m glad I did. The stock reversed to stop me out the next day, I booked a tiny 1.7% loss, and moved on to the next trade.
Chart courtesy of TeleChart [4]
By taking cues from the price action (including failed patterns [5]), it’ll only save you money by way of useful adjustments. Look at those as a courtesy.
Trade Like A Bandit!
Jeff White
Producer of The Bandit Broadcast [2]
To see what I’m trading tomorrow and how I manage my trades, check out the free trial of our stock pick service [6].