Traders take two types of losses.
One is the type every trader faces on a weekly basis, and the other is the kind you could have avoided…
Start by targeting the highest-probability setups
The first type: you have a great setup, but it simply doesn’t work. Nothing was wrong with your analysis, charting, or risk management … the setup just didn’t play ball.
This happens to EVERY trader. Not a problem at all…
But the second type of loss is a lot more painful, because it’s avoidable…
I’m talking about the self-inflicted pain that comes from ignoring your own trade plan.
You spend valuable time deciding levels for your entry, your stop, your exit. All of them were chosen carefully and for a reason.
But as soon as you’re in front of your screen and you start seeing other traders posting wins on socials, you decide to take a swing on a name before your entry number.
Or you hold just a little past your stop because you REALLY believe in some name.
Or maybe you get a little greedy and wait for the top even though you already hit your target.
Avoidable losses change the math on your trading.
Think of your trading account like running an insurance company…
You have to factor in the house that accidentally burns down, or paying out a life insurance policy from a freak accident. Those are built-in costs to selling insurance.
For trading, the same built-in costs come in the form of unavoidable losses on well-executed trades.
EVERY trader will take some of those annoying losses. What you can’t afford is the 2nd type of loss. The self-inflicted wounds.
Take it from me…
Last week I had a solid trade plan on AMC.
Alerts set in the 2.6s. A long swing on a cup and handle breakout over $3.00. The $2.50 to $2.40 zone was marked as my risk if I was wrong.
AMC never got near $2.60. The high of the week was $2.58, twice, and both times it came on a third of its normal volume.
I bought it anyway, at $2.42. Inside the exact zone I’d called my risk, not my entry. Real size, not a test position.
I was out the same session.
I had $194,000 riding on an ill-advised entry, and I still only gave back $2,411 of it, because I never negotiate with my stops. One bad decision doesn’t have to turn into two.
There are 2 stocks from that same watchlist that haven’t triggered yet, and I’m not going to make the same mistake twice in one week.
Netlist, Inc. (NASDAQ: NLST) closed six cents under the $5.00 I called for it. Nothing’s changed about the setup. I’m watching for it to actually get there before I touch it.
Hydrograph Clean Power Inc (OTC: HGRAF) never got near my $6.00 either, and the volume’s been drying up every session since. I’ll still watch the number, but I’m not chasing a setup that’s losing its own gas.
Your levels are your levels for a reason. Wait for the ones that print. Trade the size you can afford to be wrong on when they don’t.
But if you want a less risky way to target your income goals…
My friend and $3 million trader Matt Monaco has built a low-risk system with a 93.3% win rate.*
Stay sharp,
Jack Kellogg
*Past performance does not indicate future results
