Rules for Handling Losses

Your winning days should be larger than your losing days. Long-term profitability depends far more on keeping losses contained than on the size of your winners.

A single loss that is allowed to grow larger than a typical win can erase a week of disciplined work. Keep every loss small enough that it remains one data point rather than a setback.

Know exactly where you are getting out before you ever get in. Identify the price level the trade should not reach if your thesis is correct.

When that level is hit, accept the loss immediately. Hesitation is how a small, planned loss becomes an unplanned large one.

If you find yourself asking others what to do in a losing trade, you did not have a plan. Quantify your risk at entry so your risk-to-reward ratio is defined in advance.

Revenge trading is the irrational urge to win back a loss from the same market or ticker that caused it. It is driven by ego — the feeling of having been beaten by a chart and wanting to get even.

The professional response is to accept the loss and step away. The market will be there tomorrow; the capital you protect today is what allows you to participate.

Blame destroys the mindset required for consistent performance. You chose the system, did the research, entered the trade and managed the exit. You own the outcome.

You do not control price action, but you control every one of your own actions. Attributing losses to the market, other traders, the Federal Reserve or politicians adds no constructive value to your trading.

Take a trade only when your signals have triggered and your setup is fully present. Not every day — and not every market environment — suits your strategy.

Know when to trade and when to wait. When there is nothing to do, have the discipline to do nothing.

Position sizing determines both the quality of your winners and the damage of your losers. Size so that a trade moving against you leaves your emotions intact, while a trade moving in your favour still delivers a meaningful reward.

Your job is to execute your system with discipline. Over time, results take care of themselves.

Think in terms of the positive expectancy of your system, not the result of any single trade. With correct sizing, each trade is simply one of your next hundred.

Define your strategy explicitly — entries, exits, sizing and conditions — and back-test it. The tools available today make this accessible to every trader; there is no excuse for trading an unverified system.