Money Management is Key
Placing trades is just a very small component to successful trading. The absolute, 100% golden rule is that the trading capital has to be protected as much as possible. Sure, we have to risk some capital to make profits but we don’t need to gamble or bet the house.
Trading is all about statistics and probabilities. We endeavour to place trades that give us the best possible chance of a positive return but that can never be guaranteed. The right hand edge of the graph is always unknown. When trades go the wrong way, the best thing to do is cut your loss early and move on. There is always another opportunity. By holding or, or even doubling up, we start taking on much larger risks and these risks can and will eventually hurt us. That is simply a fact.
Therefore, we have a very simple approach. We place a trade and we either win or lose. The maximum loss of any one trade is pre-determined and never exceeds 0.5% of the account (often less). We also have various dynamic trade management systems where the stops will be moved to break even and/or trail the current price to lock in as much profit as possible to reduce any potential losses. Of course, we also have larger take profit targets built in and these are the main method for solid steady growth of the whole portfolio.
In short, we take losses small and early and keep moving. This keeps us alive for the very long term. Computers are much, much better at doing this than humans who tend to let emotions and ego get in the way..