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Limiting Your Winners and Letting Your Losers Run?

Of course not! We hope for exactly the opposite.

Just about anyone who traders or who teaches trading will tell you two things early in your conversation, "Trading is speculative, so only risk capital should be used," and, "Limit your losses and let your winners run." It makes perfect sense.

You have to wonder why, with something so logical, we still find traders "letting their losses run and limiting their gains." Why is this "limit/run rule" so universally ignored?

No matter how you answer that question, there is always one main theme behind it: all those who were guilty of making that mistake had, in some way, lost control of their emotions. That brings up yet another question: Why do traders lose emotional control?

We teach people to prove that something works consistently before they ever attempt to use it. Every trader needs some reason to enter a trade, along with a management scheme for actually conducting the trade.

Making sure means testing to discover two things: 1. that what you propose to do actually works; 2. that you have the emotional control to carry out your trading plan. Without complete trust in what you are doing, and complete trust that you can do it, you are setting yourself up for failure. This is especially true during rough times.

Do all your practicing on the paper-trading playing field, or on a simulator. Once you put up your money, you either do what your tested setup and trading plan tells you to do, or pick a different profession.


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Sunday, 21 April 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.