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Avoiding Devastating Trading Losses

I received this email and thought to share…

Hi Andrew,

Hope you’re doing well. Saw your post on losing trades. Maybe you could spin that answer into something more positive. For instance, using simple rules to determine when to be in/be out of markets, you can prevent devastating losing trades. You will have small losing trades, but you will be able to prevent the kind of losers that could knock you out of the game…something like that.

That’s something that Larry Hite (and others) have talked about. The point is to prevent the LARGE losses, because those are the ones that can kill you. Because if you’ve lost all your money, then you won’t be around to take advantage of the tail events.

G…

He is so right! This is our goal, to attempt to avoid big losses. They effect us both emotionally and financially. That is why I strongly suggest trading with stops. However there is no way to avoid gaps or limit moves. I strongly suggest risking less than 1% of your account size on any trade and actually in my trading I risk even less. My risk per trade range from .4 to .75 of 1%. You need to have a trading plan in order to succeed. You need to believe in it. You need to be committed…

If you need help with your trading, I offer one on one mentoring by the hour. I offer a free 1/2 hour consultation in order that we both can see if I can assist you. Just email me to schedule a time to speak.
Andrew@Trendfollowingmentor.com

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3 comments to Avoiding Devastating Trading Losses

  • Andrew,

    If you were trading, for example, equity sector ETFs where the risk of large gaps were reduced and limit moves were not a concern, would you moderate your approach to position sizing?

    Thanks,
    Pat

    • andrabr9

      Hello Pat…There are always risks and always gaps regardless of item. This needs to encompassed into your trading plan. I under trade because I accept the uncertainty. I also accept that no trade has to work. It is all about being consistent and available for those rare trades that we do not expect to work.
      If you would like to speak can arrange a time to chat next week. This week will be in London working with a group…
      Best
      Andy

  • Thanks Andy. Love the line about being available for the rare trades that we don’t expect to work. That’s an apt description – seems like the majority of my best trades felt like a bad idea when they were put on. Enjoy London!

    -Pat

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