You are taught to be compassionate, sympathetic, caring, forgiving and hopeful. Right? Then when you start trading, you learn after you lose all your money and your life savings that you need to be emotionless, cold, systematic, and worst of all, hopeless. Therefore, most people successfully fail trading because it requires the individual to be not human. You need to rewire your brain to be a machine.
It requires us to be a machine, a disciplined system, or an algorithm even. Put it this way, if your friend is being a mean to you perhaps you can talk it over and save the friendship. But, in trading, if the trade itself is not working out, you better cut your losses. Does that make sense?
How do you systematically cut your losses and never ever bag hold again, by being a machine. Before you enter a trade, you tell the machine (your brain) what the stop loss is. The machine is now forced to get out of the trade at the stop loss every single time. So how can you end up holding the bag on any trade ever again if the machine stops you out? Every time you get stopped out you lose 5%, but every time you make money you make 10%. Just think about it what I said there, its okay to get stopped out. Its okay to be wrong, but it is not okay to not get stopped out.
So the question is always, what happens if I get stopped out and the stock rips afterwards? Well, do you think the machine, the fortune teller or anyone on earth can tell the future? No one can. Put it this way, pretend you are playing black jack and you get 2 tens! That’s a good hand right, but is not guaranteed to win. And no one knows for sure if you will win. This just just like in trading, no one knows the future, but the machine will always follow the system. So you must always follow your system.
Isn’t this what a computer or a professional trader does? Do you think they move their stop losses around and mess around with their trading system or their edge? You know what edge is right? There we go, something to think about.