Most of novice traders think that the major responsibility of a trader is to make money.
In fact, more important than to make money, is to preserve your capital.
The no.1 responsibility of a trader is not to lose money, is to protect the money.
The responsibility of making money is from the market.
If you buy a stock at $50 and then it goes to $55, the market made you money.
You didn’t anything for the stock price to rise, you just waited for it to move, nothing more.
If instead, the price goes from $50 to $49, you close your position.
And then the price keeps falling until $40.
You did your job, you protected your money.
You should never lose more than the reason of your entry.
The reason of your entry is just a pattern that you identify on the chart.
The break of that pattern is your time to entry.
If the price goes against you, then just stop it before it’s too late.
Stop it before your small loss turns into a big loss and then into a huge loss. How much of you already made this mistake over and over?
Just put your Stop Loss on the other side of the reason of your entry.
Because if your reason disappears, gets deleted by the price, there’s no point in continuing with your position open.
And when you add to your position, when your 1st trade is in profit, then just adjust your Stop Loss. Your risk cannot increase. You must always cap your maximum risk per trade and be faithful to whatever is that value.
If you just lost the reason of your entry why would you keep your position open?
It’s dumb to lose more than that. But in fact, most novice traders don’t understand this.
They are moved by emotions.
They don’t want to lose.
They don’t understand that small losses are part of the profitability process.
If you don’t accept your losses then sooner or later your account will just disappear.
If you never lose more than your reason of entry then you have the path clear to be a profitable trader.