“I take the point of view that missing an important trade is a much more serious error than making a bad trade.”
In this quote, Eckhardt is referencing his trading around the time of the first Gulf War. He explained that he didn’t understand why the markets were behaving in the manner that they were and gave serious consideration to sitting on the sidelines. He then went on to explain that if he traded, he could still limit his downside risk, but if he sat out, there was no way he could control his risk in terms of the opportunity cost of missing a big winner.
This falls perfectly in line with Trend Following and CANSLIM methodologies. By focusing on cutting losses short and letting profits run, we have a strong focus on limiting our downside risk. We forms the rules for our systems based on research, therefore it can be very risky to change those rules for discretionary reasons.
