Friday, June 07, 2013

It's ok to be wrong

One thing you need to able to deal with when trading is that you will suffer losses, on many occasions. I know I'm wrong half of my positions, but am still able to make money by ensuring I keep the average size of my losses smaller than the average size of my winners.

This occurs more when the markets are in the process of changing trend, or during periods of high volatility.

Currently the general markets are in a volatile state, which a clear lack of direction. Some people (such as myself) who use relatively short term systems have seen new signals on the short side come up, others who may trade longer term systems will be showing pullbacks in a lot of stocks, still within the context of an uptrend.

Whether one system is proven right over another is irrelevant. The more short-term the system, the earlier they will be able to get into a new trend, but the trade-off is that they will also suffer more frequent losses when those signals fail.  The fact is a trader must be willing and able to accept when they are wrong, take their losses and move on. Otherwise, you run the risk of allowing a small loss to turn into a much bigger loss.

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