A quote from a book:
In Schwager's "The New Market Wizards," he lists 42 observations regarding success in trading.
"From number 28, called Learn to be Disloyal: "Loyalty may be a virtue in family, friends, and pets, but it is a fatal flaw for a trader. Never have loyalty to a position. The novice trader will have lots of loyalty to his original position. He will ignore signs that he is on the wrong side of the market, riding his trade into a large loss while hoping for the best. The
experienced trader, having learned the importance of money management, will exit quickly once it is apparent he has made a bad trade. However, a truly skilled trader will be able to do a 180-degree turn, reversing his position at a loss if market behavior points to such a course of action."
Conclusions: Experienced traders understand losing, or unprofitable trades, comes with the territory. The best way to preserve capital, or the application of sound money management, is to simply take a small loss early.
The less you lose, the more money you get to keep for the next opportunity. Also, by limiting losses to small ones, you can continue to bet until you hit a wining streak.
Possessing the humility to reverse a losing position if market conditions warrant such a decision separates the average traders from the superior traders. Let's say you went long too late on a position in a stock at the very point when the market turned. Conversely, you sold short at the very point when the market in the stock went bullish. If you take the loss quickly and then reverse the position to get on the correct side of a prevailing trend, you allow yourself the opportunity to turn a loss into a net profit."
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