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Tuesday, May 19, 2009

How To Lose Money The Right Way

Dr. Brett's superior words of wisdom and survival

So much of trading success comes from learning how to lose the right way. If many of the traders I work with followed a few basic guidelines about losing well, it would aid their performance immeasurably:

1) Never lose so much on a single trade that you can't come back and be green for the morning or afternoon;

2) Never lose so much in the morning that you can't battle back and be green for the day;

3) Never lose so much in a day that you can't rally and finish the week green;

4) Never lose so much in a week that you can't have a profitable month;

5) Never lose so much in a month that you can't make money for the year.

Psychologically, it's healthy to experience defeat and then overcome it. It strengthens you to battle back and win. If you lose the wrong way--by taking so much risk that you can't come back for the day, week, month, or year--you rob yourself of the victory that could be yours by going from red to green.

Sound risk management is the cornerstone of a healthy trading psychology.
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