I've lost more money thinking, "Oh, this will turn around because – pick some stupid reason – it's Tuesday with the smell of daisies in the air, and the Bank of England surly wouldn't raise interest rates again."

Really? Save your opinions for movie reviews.

So simple....

Poker and dice players have a wonderful saying about not playing every hand or standing at the table for hours at a time: "There's a hand or throw being done every minute somewhere, so there's no need to feel like you'll miss something by not playing right now."

Jessie Livermore put it this way: "There is a time to go long. There is a time to go short. And there is a time to go fishing." He also said quite plainly: "It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!"

If you trade all the time, the law of large numbers will hit your bank in a very bad way. If you have a 25% win to loss ratio, there is an 11% probability that you could hit 15 losses in a row in 100 trades!

That's not a Black Swan. That's a pretty substantial chance you're going to get hit. If you trade 300 times, about 25 trades a month or a little over 1 trade a day, the probability goes to 30%.

Wait for the entry signal to jump off the screen at you. Don't try to 'find' it.

So simple....

First, your stress level goes up. You can't make good decisions when you are under stress. The fact that you have already made a bad decision by not exiting the trade will undoubtedly lead you to make more mistakes.

Second, you will incorrectly justify your decision not to exit by going to a higher time frame chart and looking for support or resistance areas where you convince yourself that price will surely run into and then reverse. Really? Why not just skip the stupidity and go up to the weekly chart; there's sure to be support or resistance a thousand pips away....

Third, you miss the opportunity to make trades in both directions. If you exit immediately, you may enter a new trade in that direction, ride that to a support or resistance area at a higher time frame (as indicated in the Second issue), and then exit with a profit.

In addition, if you're initial feeling that price should ultimately go in the original direction your analysis indicated it was for you to make the trade, you could then reverse and enter a new trade, ride that to your original entry point, and then either close and enter a new trade to your original identified target, pull off part of your trade and let the remainder run to your original identified target, or just let the trade continue to run.

And even if you do none of that, you save yourself a lot of grief by just getting out of a trade that's not doing what you thought it should.

So simple....

After identifying the risk, then go back and confirm if there is sufficient reward offered by the trade. Paul Tudor Jones, multi—billionaire speculator, had this to say about evaluating risk and reward:

"Where you want to be is always in control, never wishing, always trading, and always first and foremost protecting your ass. That's why most people lose money as individual investors or traders because they're not focusing on losing money. They need to focus on the money that they have at risk and how much capital is at risk in any single investment they have. If everyone spent 90 percent of their time on that, not 90 percent of the time on pie-in-the-sky ideas on how much money they're going to make. Then they will be incredibly successful investors."

That's a statement of pure risk management. And risk management has nothing to do with profit targets, risk to reward or win to loss ratios, entry rules, or..., well, just about anything. Managing risk is managing risk, and that's it.

And how do you manage risk? You: close‒the‒trade when your risk level is met. By risk level I mean when price hits your pain of loss point, or when a retracement from a very profitable position hits the point where you feel you've given up enough of your accumulated profits and the risk of further erosion of the position appears certain.

There are several times during the management of a trade when you're going to be faced with one of these risk motivated decisions. I've covered them in the topic Managing An Active Position, but think they're worth restating here.

I had to create rules for all of these scenarios because the emotional stress of trying to decide what to do in real time always – always – resulted in losing a lot of money. Always....

What would such a rule look like?

Well, let's take a look at the 'break even stop' trade management situation as an example.

When I'm in a trade that's going well for me, I want to let it run. What I don't want to have to worry about is having it turn around on me, blow past my entry point, and then be faced with the choice of either an immediate close or waiting to see if it'll turn around.

I have a rule that says once the price extends beyond my profit target by a certain amount (could be pips or dollar based), I'll set a break even stop at my entry point.

The assumption I have to go on is that, if price went to my expected profit target but then turned around and goes back to my entry point, then I'd need to look at that as if I'd just entered the trade and it was going against me, in which case I'd immediate stop out.

So simple....