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theory suggests that a trader should determine to accept a certain loss limit each day and cease trading after the limit has been reached. |
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If you have continuing losses, it is a good time to return to simulated trading so that you can regain the feel for the market and reestablish your confidence in yourself and your judgment. A good rule of discipline is to revert to paper trading when you feel out of sync with the market. Take time out and reestablish your feel for the ebb and flow of the market. In which direction is the market moving? Listen to the music of the market and not the silence when the music has stopped. |
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As I stated above, I do not subscribe to purely mathematical guidelines. You should have a good, sensible, logical, and rational reason for entering into every trade. If your reasoning is correct, then you will make money. If your reasoning is wrong, then you should contain your loss. You want to trade based upon commonsense rationality and reason. You trade because you sense opportunity. Even though you are trading rationally, you may still lose money in an irrational market. The market does not always act in a logical and rational manner, and you must take it as a given that you can lose money because the market is choppy. A slump is not a reason to give up trading. |
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You should trade when it feels right and when you have a plan. You must have a plan for every order you want executed. The trading plan should encompass your fallback position if the market goes against you. You must know your position and your reaction to every price movement after you initiate a trading position. Never think that paper profits are not real just because you have not as yet realized those profits. Likewise, trading losses are not paper losses; they too are realand painful. |
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Never Trade With Money You Cannot Afford To Lose |
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An old Wall Street adage states that you should never trade with scared money. If you can't afford to lose capital, you |
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