Experience in trading is what counts
I have been trading for over 35 years. This equates to experience. There is nothing that substitute for experience. Knowledge is great, skills are great, confidence is great, but experience is the king. If you go to a doctor for treatment of a serious illness would you take the class Valedictorian of Harvard who just graduated summa cum laude or the one that graduated from State U. but has 30 years of experience? I don't know about you, but I'd take the guy with experience anytime.
Trading "wisdom" is often wrong
One of the biggest things that experience taught me is that lots of so-called trading "wisdom" is just flat out wrong. By trading wisdom I mean the stuff that is supposed to comprise the common sense, rules and "axioms" that everyone must follow in order to be successful.
One of the worst examples
Let me give you an example.
I am sure you have heard of the expression, "cut your losses short and let your profits run." Everyone has heard this expression at one time or another. It's stated so matter-of-factly as in, "Duh...do I really have to tell you that?"
Well, that expression is probably the single worst piece of "advice" ever given when it comes to trading and it is probably responsible for more losses than any other thing. Yet it continues to be repeated over and over as if it were some golden nugget of insight passed down by Socrates himself.
Bad assumptions make for bad trading
Here's why that saying is so bad. It contains assumptions that are impossible to know. For example, when you say, cut your losses short it implies that you know, for sure, that your loss will turn into a larger loss. That assumption assumes that you know the future. The fact is you don't know the future for certain nor does anyone else. In other words, you have no idea if your loss will turn into a larger loss. I bet many of you have had the very frustrating experience of cutting your loss only to watch as the market turns and that loss would have been a profit had you held on.
The second half of that settlement tells you to let your profits run. There is that assumption again. The statement assumes that you know your profits are going to run. How do you know that? Can you tell the future? How many times have you had a profit, but then watched as that profit turned into a loss? If you're like me, the answer is probably, many.
Here's some good trading advice
So this saying, "cut your losses short and let your profits run" is useless advice. A more realistic saying and what I like to say is, "Cut your profits short and let your losses run." Obviously I am not being literal here, but the idea is that you can never go broke taking profits (and continued, small profits add up to a big trading account) and if you manage your losses, rather than just "cutting" them, you can very often "work them" using strategies that I have developed and then get of of them without any loss at all. Sometimes you can even turn them into profits, too.
So remember, next time you hear someone say, "cut your losses short and let your profits run," you should be t thinking, cut your profits short and let your losses run.
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