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How Much Money Are You Willing To Lose Today?
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How Much Money Are You Willing To Lose Today?

  #1 (permalink)
Austin, TX
Trading Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: Currencies
hondo69's Avatar
Posts: 165 since Jun 2009
Thanks: 57 given, 243 received

How Much Money Are You Willing To Lose Today?

This coming week I'm going to make just one change to my trading style. And that change is to ask myself exactly how much money am I willing to lose today?

And for me, that answer is $ 450. I am willing to play the game with all my knowledge and skill, then do my level best to win at every trade. But at the same time I have already set a limit to an absolute loss amount. It sets a boundary that I will not cross and I realize that fact going into the trading day. Now I can fold up those negative thoughts about losses and put them away and go about my business of making money.

As I discovered Friday, my problem was located just where you'd expect to find it, right between my ears. I've been trading with the wrong mindset all along. Call if Fear of Failure, Fear of Success or whatever name is in vogue this week. The bottom line is I haven't been trading with a winner's mentality.

I've concentrated so much on limiting losses that my stops are too tight, or I exit a trade too early or I simply look for a reason to get out of a trade. Look, we all have our systems that we trade and we've selected those systems for a reason. We need to trust those systems and allow them to work before we bail on them at the first sight of failure.

If I go into the day knowing my total risk beforehand, even before I sit down to the computer, I will have set the tone for success. I enter the game knowing my maximum risk per trade is $ 150 and I will accept up to 3 consecutive losses in a row before I hang it up for the day. That rule is set, it will not be broken and now I can concentrate on the main reason I'm here in the first place, to make money.

So let's see how this philosophy works in real life, as it did for me Friday (with a friendly nudge from my trading partner). My maximum risk allowed on any give trade is $ 150 so I must therefore tailor my trades accordingly. Since I trade 2 contracts at $ 12.50 per, my stop is required to be set at 6 pips. It is up to me to calculate the optimum entry points within this framework.

You might say that stop is too tight for your trading style. Fine, only trade 1 contract and set the stop at 12. Either way your losses for any given trade are predetermined, which also means your losses for the day have a boundary too. The important point is to lock in that number and do not deviate from it for any reason. By doing so you will go a long way towards eliminating those negative thoughts that persist in the middle of a trade.

We've all had trades that move immediately against us and those will happen. They come with the territory. But in all honesty aren't those trades few and far between? They are just as rare as those trades that make a big move in our direction. Most trades fall somewhere in between and those are the trades to focus on.

When I entered the trade I was willing to risk $ 150. If market conditions have not changed then I'm not going to change my plan.

Sometimes conditions do change and then it's wise to sneak out with a little profit or loss. But a few pips on each trade are not going to change your life. Develop a plan and stick with it. And the most important part of that plan starts with a predetermination of risk. Once that number is locked into place your mind is free to concentrate solely on winning, and that will change your life.

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  #2 (permalink)
Trading Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: FGBL 6E B4
max-td's Avatar
Posts: 1,754 since Jun 2009
Thanks: 2,309 given, 922 received

ThanX hondo for these thoughts !

to work with a mindset + a plan like this will give you much more freedom in your tradingday and will stop all this mindfuck that comes over you every minute if you dont have your "when what to do-plan" defined good enaugh !

for sure all this only works if you have a clear defined tradingsystem you already trust in.

Thanks a lot for this input !

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  #3 (permalink)
Neubrandenburg, Germany
Trading Experience: Advanced
Platform: R
Favorite Futures: Stocks
wh's Avatar
Posts: 538 since Jun 2009
Thanks: 297 given, 494 received

i will never lose more then 10% of a day, week or month. then some think is wrong with me or my system. last year i losed 30% (in two days) of my acc. and i needed more then 3 months to come back. then i losed again 20 % ... and i came back ... with gain and the gain losed in a view days.

then i looked to my systems, not in my mind, and changed and changed and changed ...
but the systems are stable, i was the problem. i had no discipline. i could follow my rules.
now i know, i was the virus in all my systems.

so i come back to train my discipline and myself.
and now i can control my emotions for better trading.

what i will say is: you are the key and you can handle your risk. importent is a good money management. so you can risk 5% and can win 10% with a good ratio for a day.
if you lose 5% on a day, you will wait for the next good entry setup. then you can lose 2 trades and win one.

thanx also to max, george, mike and other for support

Causality is the relationship between an event (the cause) and a second event (the effect), where the second event is a consequence of the first.
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  #4 (permalink)
Austin, TX
Trading Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: Currencies
hondo69's Avatar
Posts: 165 since Jun 2009
Thanks: 57 given, 243 received

Yesterday was a good example of putting this principle to work. After making one good trade my next was stopped out right on my number before the market turned back in my direction. Man was I pissed.

I had made the right decision, just entered a bit early or was a little unlucky. Either way it was a losing trade that cost me $150. After a shower for some time to clear my head I was able to get back into the proper mentality. I just needed a little time to review the idea above and get back to the original game plan. It's just so critical to success to be able to trade with a clear head.

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