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Amateurs want to be right, pros want to make money

Just take the loss while it’s small. You will preserve your financial capital as well as your emotional capital. Yes, there is emotional capital that we give away while we’re stressed with a trade.

What I’ve come to realize is that all professional traders take losses, even the most successful ones. What separates them from punters is that they take a small loss when they’re wrong. They don’t try to be right, they try to make money on probabilities. As a trader, you can allow yourself one of the three outcomes on a trade: small loss, small win, big win. You see what’s missing, right?

I had couple of trades this year where I didn’t respect my STP loss order, canceled it before the market open when it was underwater in pre-market to day-trade myself out at a better price. Let’s see how these worked out and what I’ve learned.

AAL long in early January. I bought the stock anticipating a move up reverting to the mean. Next day before opening all the airline companies were deep in red. While there were no news about AAL (I know I shouldn’t even read them), one of the competitors had bad guidance going forward. I canceled my STP to day-trade out of it. Green arrow marks my entry. Yellow arrow marks the sell-off next day. As the price recovered I decided to hold longer and finally sold it at a better price with a small loss. I was on a vacation in Dubai at the time and I didn’t want to think about the trade. If your trade is out of the plan, it’s a relief to just close it. It rallied afterwards together with the strong market but we can know this only in hindsight.

AAL long in January 2019.

EXR short day-trade in late March. Yes, day-trade. Besides shorting I also started day-trading a bit on the hourly and 10min charts to lift my competence in the markets quicker (more sample size and practice). The chart below is hourly (each bar represents 60min). Red arrow marks my short entry, yellow bar marks the last bar of the day before close, green arrow marks my exit (covering). So it simply went out of hand for me, emotions kicked in before market close. I was wrong but didn’t want to take the loss. I froze watching the screen and the market closed, I was heavily underwater with this position. It affected my appetite and my sleep. Tho in the morning I woke up like nothing had happened, I was waiting for the opening to day-trade out. In hindsight, the day after my exit it collapsed.

EXR short day-trade in March 2019.

While in both cases my effort to day-trade myself out at a better price worked out and I lost less on these trades, I have taken notes not to do it anymore. I have a STP in place for a reason, if the opening gap hits it, I’m out at market price. My trade plan didn’t work, I’m not here to be right, no questions asked. I’m here to make money.

Beginners are looking for the next winner, pro traders know how to take small losses and make money.

Lesson Learned: Amateurs want to be right, pros want to make money.

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