Hope is not a strategy

You never “win” a trade once you are in it…you win the trade by managing your risk and defending your position. You only make money when you get out of the trade. Until then, it is just paper profits.

What you can do is put the odds on your side and mitigate your risk by working a good strategy/system and having defined rules and thresholds that you will follow.

Why is this so important?

Well, as you will find, many-times investors have a chance to make a profit and “want to hang in there” for even more profit and then they lose.

For example, I trade options and have a rule that if I reach 50% of my profit goal in the first two weeks of a trade, I take it and get out. Sure, I could probably make a little more, but after tracking trades for years, I know it’s not worth it to stay in as I will tie up capital longer and lose more than I win over time by staying in.

Rules and thresholds help you to mitigate risk. The truth is that no matter what, there will be trades that you will lose, but with good rules and thresholds that stop you from taking a full loss or that allow you to lose a small amount but still stay in the game; you have a much better chance at winning over time.

As I said earlier, this is where I made my biggest mistakes.

I thought that I could manage my trading business like I did my other businesses and thus would take on more risk. I had rules sets, but would let trades go outside of them…because there was a chance that “I could win it and I was willing to take the risk.” Like many other traders have found from the same experiences, I got burned and it took me a long time of diligent, rule-based investing to make the losses back.

If you are going to invest, plan for your success.

Make sure that you have defined rule sets and thresholds of when to get in and out of your trade. Before you make the trade, know where you will take profits and how much of a loss you will allow before you exit and then stick to it!

As stated at the beginning of this article, investing in the markets is an exciting experience and can create amazing wealth for you. By learning from the mistakes of others and finding good mentors that can help you along your way, you will find success that much faster. Always remaining diligent, learning from your mistakes, having a plan for your trading business that balances logic vs. emotion, and utilizing rule sets and thresholds will help you to win over the long run