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I take the opposite view. The view shared by the Phantom of the Pits and many other successful traders.:
When you enter a trade, don't wait for the market to prove you wrong, look for the market to prove you right.
Why sit and wait as price moves against you and hits your stop? If you are on the wrong side, get out. Enter a trade looking for price to prove you correct by moving in your desired direction from the start. If it does not, does price really have to move all the way to your stop loss for you to know you are on the wrong side? Of course not. Place the stop, but get out prior to price hitting it.
Losses are indeed an business expense in trading. But you can strive to cut your losses short. One good way to do that is to not wait to be proved wrong. Remember, trading is a losers game-he who loses best, wins. |
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I guess it is how you define that your trade is wrong. The OP thought his trade was "Wrong" and got out. Then it went to deliver to his price objective. So in essence, he got out a whole 1 tick, instead of what he should have gotten if he let the trade be. So, if trading is an odds game, which it is, the OP just reduced his odds of making money since this was a "winner" ( it delivered the price objective w/o the stop being hit) the next one or two trades could be losers, but since he cut his winner short to 1 tick he will be down instead of up or breakeven.
True cutting loses short is good. But it seems that if a trade doesn't instantly go your way you get out. That might work for you, but not for me.
I think of it as a restaurant analogy. Say you run one of the best steakhouses around. You get a huge delivery of steaks ( t-bones, porterhouse,etc). You know you must sell them all before they go bad in a week. So on monday you go to look at the reservations for the the weekend and you see you have very little. You get scared that all those expensive steaks you just bought are going to spoil and you have a loss. So you call the other local steakhouse and sell them the steaks for a marginal gain to you. You feel better because you know you wont have a loss. But when the weekend comes around you find your restaurant packed. However, you don't have any steaks to sell these customers. So the money you could have and should have made, is much more then you got. So in the end you would have been better to risk the steaks spoiling rather then sell them early for a small profit.