The Secret To Success? Small Losses by Danish Kapur
Taking small steps, being patient, and following a
well-thought-out plan makes all the difference.
Youíve read enough books on technical analysis. Youíve attended seminars and
courses. Now youíre ready to tackle the markets. Most people think that if they
can analyze the markets correctly, they can make a profit easily. After spending years learning different forms of
analysis and modeling techniques,
and spending enough on expensive
software or trading systems that you
think can do some magic, people assume
they can make money easily,
but that is not the reality.
You can come up with the best
analysis of the market and economy
and still lose money. It happens to a
lot of traders. Although I think analyzing
the markets is important, it
has little to do with successful trading.
Successful trading has more to
do with getting your money out of
the market in a disciplined way.
The small loss
The biggest hindrance to successful
trading is the refusal to accept
your mistake when it can be done
at a small loss. It is human nature,
and unfortunately, one that comes
at a cost. It can lead to massive
destruction of all your wealth and
all your confidence.
People assume that taking an
early small loss will somehow
lower their self-esteem. What eventually
happens is that the small loss
turns into a greater one and ends
up putting you in a situation where
you are trapped. Sometimes you
just canít find a way out. Itís not
a good situation to be in, which is
why it is so important to predefine
your risk in every trade you take.
Not doing so is a sure way to make
your relationship with the market
a very brief one.
Often, your views tend to be
one-sided and you assume there is
no room for error. When the stock
starts moving in the opposite direction,
you start thinking that it is a
temporary pullback and the stock
will resume its previous trend.