market psychology money

7/23/2019 Market Psychology MONEY

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MARKET PSYCHOLOGY – MONEY

FOREWORD This tutorial and th arti!l s " lo# dis!uss th i$%ortan! o& %s'!holo('in th tradin( and in) stin( %ro! ss* Whil 'ou !annot !ontrol th$ar+ t, 'ou !an !ontrol 'our $on ' and th ris+ that 'ou %ut on ) r'trad and 'our attitud to tradin(* A d -nition o& su!! ss&ul $on '$ana( $ nt is to $a.i$is ) r' #innin( trad and $ini$is loss* /noth r #ords0 th id a is to los th l ast a$ount o& $on ' #h n 'ou ar#ron(* Th di1 r n! " t# n a #innin( trad r and a losin( trad r has alot l ss to do #ith th #innin( trad r2s +na!+ o& %i!+in( #inn rs* All

#innin( trad rs +no# to .% !t los rs and to .% !t lots o& th $* A!onsist ntl' su!! ss&ul trad r und rstands that on an' (i) n trad 0 onso$ l ) l0 !han! is in)ol) d* Losin( so$ trad s is in )ita"l , "utsu!! ss&ul trad rs a!+no#l d( this* Whil it is ni! to " $a+in( $on '#h n th $ar+ t $o) s in 'our &a)our, it is th ti$ s #h n it do s notthat ar $or i$%ortant #ith r (ards 'our $ar+ t %s'!holo('*

YO3 DO NOT ALWAYS NEED TO 4E R/GHTA !o$$on " li & a$on( no)i! trad rs is that on al#a's n ds to "ri(ht* Man' " li ) that a tradin( strat (' $ust al#a's %rodu! a %ro-t*Althou(h it is tru that a lon( losin( str a+ !an #i% out on 2s tradin(a!!ount0 on !an a!tuall' ha) a lar( %ro%ortion o& losin( trad s to#innin( trad s and still " %ro-ta"l * /t is $ r l' a $att r o& usin( ris+$ana( $ nt* L t us !onsid r a s% !i-! h'%oth ti!al .a$%l toillustrat this %oint*Su%%os 5ohn has R678 888 to in) st* H d !id s to ar"itraril' ris+ 79 o& his !a%ital on a!h o& 68 trad s* H -(ur s it is a r lati) l' s$all a$ountthat h !ould a1ord to ris+ and los * H also d !id s to us a si$%lsto%:loss rul ; i& a shar %ri! dro%s " lo# <9 o& th %ur!has %ri! 0 th ns ll* H th n us s an ar"itrar' s ll rul &or his #innin( trad s; /& a sharin!r as s "' =89 o& th %ur!has %ri! 0 th n s ll* >Pl as not that #ar not ad)o!atin( th us o& th s rul s0 # ar ?ust tr'in( to $a+ a%oint@*L t us !al!ulat th .% !t d r sults* A%%ro.i$at l' R 788 isris+ d on a!h trad * /& th trad los s RB880 it is sold* /& th trad%rodu! s a R6 788 %ro-t0 it is sold* /& out o& 68 trad s ar #inn rs0 tho) rall %ro-t >#ins : loss s@ is > R6 788@ : > RB88@ R 788 : =88



R 88* No#0 R 88 is not ) r' $u!h o& an o) rall r turn0 "ut 'ou !ans th %oint* E) n "' #innin( onl' out o& 68 trad s0 th r is still a%ro-t*

This is uit a !ons r)ati) strat ('* On %ro"a"l' #ould not #ant to

&ollo# it %r !is l'* /t d $onstrat s0 ho# ) r0 that on do s not al#a'sn d to " ri(ht all th ti$ to !o$ out ah ad* N ) rth l ss0 'ou $a's that a & # $odi-!ations !an $a+ th ( n ral a%%roa!h ) r'%ro-ta"l * For .a$%l 0 i& on # r to #in 789 o& th trad s0 th

.% !t d %ro-t is >7 R6 788@ >7 RB88@ R 788 : R 888 R 788*Si$ilarl'0 on %ro"a"l' #ould not #ant to s ll a #innin( trad $ r l'" !aus it r a!h d a =89 %ro-t* On !an l t it rid a littl lon( r and% rha%s $a+ a 789 %ro-t0 &or .a$%l * This #ould r sult in ) n $oro) rall %ro-ts* Th in!or%oration o& ris+ $ana( $ nt rul s allo#s 'ou to" #ron( a lot o& th ti$ 0 and it is r assurin( to r $ $" r this %oint*So r $ $" r that 'ou do not al#a's ha) to " ri(ht to $a+ a %ro-to) rall* E) n "' usin( a ) r' si$%l s t o& ris+ $ana( $ nt rul s0 and&ollo#in( th $ $ !hani!all'0 'ou !an !o$ out ah ad* Th l sson h ris not to us su!h rul s $ !hani!all'0 "ut to !onsid r ho# so$ si$%l%lannin( and ris+ $ana( $ nt !an %r ) nt $otions0 su!h as an.i t'and & ar0 &ro$ n (ati) l' i$%a!tin( 'our tradin( d !isions* Wh n 'ouar -rst l arnin( to trad 0 ris+ $ana( $ nt !an h l% 'ou sur)i) 0 sta' in

th (a$ 0 and allo# 'ou to hon 'our tradin( s+ills* As 'ou (ain $ors+ills0 'ou !an ris+ a littl "it $or on trad s 'ou ha) id nti- d as hi(h%ro"a"ilit' s tu%s and -n :tun 'our sto%:loss or .it rul s* 4ut in th$ anti$ 0 !onsid r + %in( 'our (oals $od st0 #ith th $ain (oal o&$ini$isin( ris+s0 "uildin( s+ills0 raisin( s l&:!on-d n! 0 and r -nin( 'our$ thod*

/T /S NOT MY FA3LT : WHY /T /S SO HARD TO TAKERESPONS/4/L/TYA &unda$ ntal truth o& tradin( is that on $ust ta+ &ull and !o$%l tr s%onsi"ilit' &or "oth &ailur s and su!! ss s* /t is as' to ta+ !r dit &ora #innin( trad 0 "ut a losin( trad I Our -rst instin!t is to -nd an .!us ;

Th $ar+ t !onditions !han( d too ui!+l'* Th $ar+ t $a+ rs ar$ani%ulatin( th %ri! a(ain* / should not ha) ta+ n th ad)i! o1 r d"' that unin&or$ d anal'st* /t is as' to -nd .!us s &or losin( trad s0"ut in th nd0 a #innin( trad r ta+ s &ull r s%onsi"ilit' &or all as% !ts o&

a trad 0 #hat # nt ri(ht and #hat # nt #ron(* Ta+in( &ull r s%onsi"ilit'is !ru!ial* Trad rs #ho do not ta+ &ull r s%onsi"ilit' #ill d )ot th "ul+



o& th ir %s'!holo(i!al n r(' to d & ndin( th $s l) s a(ainst th ir$ista+ s* Rath r than !ulti)atin( a %ristin )i # o& th $ar+ ts0 th ' #illt nd to hold a )i # distort d "' th ir "urnin( d sir to a)oid "la$ * /naddition0 #hil on is -ndin( an .!us &or an ad) rs ) nt0 no ti$

and n r(' is d )ot d to anti!i%atin( ad) rs ) nts and thin+in( o&%r ) ntati) strat (i s to n utralis th $* 3n&ortunat l'0 &or $an'trad rs it is diJ!ult to ta+ &ull and !o$%l t r s%onsi"ilit'*Wh' is it so hard to ta+ &ull r s%onsi"ilit'I A )ari t' o& %s'!holo(i!al

.%lanations .ist0 and th ' di1 r d % ndin( on th % rson and his orh r %s'!holo(i!al histor'* E) r'on t nds to a)oid r s%onsi"ilit' to so$

.t nt* Th r is a ) r' hu$an t nd n!' to "uild u% our (os and & l(ood a"out ours l) s* /n .%lainin( th out!o$ s o& our li) s0 # o&t nattri"ut su!! ss to our s+ill0 int lli( n! 0 and tal nt0 and attri"ut&ailur to .t rnal !ir!u$stan! s0 o) r #hi!h # had no !ontrol* This( n ral t nd n!' usuall' h l%s us !o% #ith $ost o& th ad) rs ) nts# n!ount r in our ) r'da' li) s0 "ut this t nd n!' is s l&:s r)in( andi$% d s on &ro$ ta+in( %r ) ntati) $ asur s to anti!i%at %ot ntialad) rs ) nts*For so$ % o%l 0 $a+in( .!us s and a)oidin( r s%onsi"ilit' is root d in

arl' !hildhood* So$ % o%l (r # u% #ith %ar nts #ho s% nt all th ir1ort %ointin( out and s ) r l' %unishin( ) r' sin(l $ista+ th ir

!hildr n $ad * As !hildr n0 th ' l arn d that to a)oid %unish$ nt0 th 'had to $a+ an .!us and %la! th "la$ &or th $ista+ on an'on"ut th $s l) s* Th !ons u n! s o& $a+in( ) n th $ost $inor$ista+ # r so dr ad&ul that th ' & lt a stron( n d to a)oidr s%onsi"ilit' at all !osts* P rha%s $ost % o%l .% ri n! d this t'% o&%ar nt:!hild transa!tion to so$ .t nt0 "ut at an .tr $ 0 it !anin!a%a!itat * On " !o$ s a&raid to a!t out o& a & ar o& &ailur * And #h na trad r & ars &ailur 0 h or sh #ill " una"l to tr' out n # tradin(id as or #ill " a&raid to a!! %t &ull r s%onsi"ilit' &or th trad *

Ta+in( &ull r s%onsi"ilit' &or loss s is diJ!ult* On has to " !on-d ntnou(h to r alis that ?ust " !aus on $a+ s a $ista+ 0 or $iss s a

%ot ntial ad) rs ) nt0 it do s not $ an that on is inad uat orin!o$% t nt* /t $ r l' r !ts th #a' thin(s #or+* No on is % r& !t0and $ista+ s ar ! rtain to ha%% n* 4ut a)oidin( r s%onsi"ilit' is ) n a"i(( r $ista+ * Pla!in( th "la$ on so$ on ls or .t rnal ) nts$a+ s on l ss !autious* All %s'!holo(i!al n r(' is &o!us d ond & ndin( on s l&0 "ut all n r(' should " s% nt !al$l' id nti&'in(%ot ntial ad) rs ) nts and -ndin( !r ati) solutions to !ount ra!t



th $* Ta+in( &ull r s%onsi"ilit' nsur s that th s %r ) ntati) st %s arta+ n*

THE /NFL3ENCE OF S3NK COSTSSi$on has " n &ollo#in( Alt !h shar s &or th %ast t#o ' ars* /t is his$ost &a)ourit shar in his %ort&olio* H li+ s th !o$%an'* Hanti!i%at s n # %rodu!t announ! $ nts #ith .!it $ nt and !annot#ait to s !onsu$ r r a!tion* H has r ad s ) ral r s ar!h arti!l s onth histor' o& th !o$%an'0 and h ad$ir s th CEO* Si$on has $ost o&his tradin( !a%ital in Alt !h shar s* Althou(h h has a stron( %assion &orth !o$%an'0 'ou $i(ht sa' that Si$on is a littl o) r:atta!h d or

$arri d to th !o$%an'* H $a' ha) too $u!h o& his % rsonal $otions#ra%% d u% in th !o$%an'0 and it is %ossi"l that th s $otionalatta!h$ nts $a' o) rl' in u n! his tradin( d !isions* H has not onl'in) st d a lot o& his $on ' in th !o$%an'0 "ut a lot o& his % rsonal ti$and 1ort* Th s -nan!ial and % rsonal !osts $a' lo# r his o"? !ti)it'*Wh n it !o$ s to $a+in( d !isions a"out tradin( th shar 0 it is uit%ossi"l that h $a' " undul' in u n! d "' #hat s!holars !all th

sun+ !ost 1 !t* /t is us &ul to " a#ar o& this "ias0 and $a+ surthat it do s not su"!ons!iousl' in u n! 'our tradin( d !isions*

Th !l ar st .a$%l s o& sun+ !ost 1 !ts ar #h n # o) r%a' &orso$ thin(0 #h th r it is #ith $on '0 1ort0 or ti$ * Th $or 'ou %a'&or so$ thin(0 th $or 'ou )alu it* For .a$%l 0 i& 'ou s% nd a ' ar2ssalar' on a n # !ar0 'ou " li ) it is #orth #hat 'ou %aid &or it* So #h n'ou tr' to trad it in a ' ar lat r0 and th trad :in )alu is a lot l ss than'ou thin+ it should " 0 'ou & l a littl u%s t* You $a' d -antl' thin+0

Ho# !ould it " #orth l ss than #hat / o# I / thin+ / a$ ( ttin( ri%% do1* You & l !o(niti) dissonan! * That is0 th r is a lo(i!alin!onsist n!'0 or !on i!t0 that r uir s r solution* You %aid a lot &or th!ar0 "ut no# its )alu is l ss than 'ou had thou(ht* To r sol) thun asin ss o& th in!onsist n!'0 so$ thin( in 'our %s'!h $ust !han( *

You $a' thin+0 / #ill + % th !ar lon( r and ( t $or )alu out o& it*4ut0 ) n i& 'ou d !id to trad it in0 it is hard to ?ust #rit o1 tha$ount lost to d %r !iation* Hu$ans ha) a natural a) rsion to loss o&an' +ind0 and that is s% !iall' tru #h n it !o$ s to th $ar+ t*P o%l t nd to " li ) that an in) st$ nt is #orth #hat th ' %aid &or it*

Th ' " li ) that th ori(inal %ur!has %ri! ndur s0 ) n #h n !urr nt

$ar+ t %ri! s su(( st that th )alu has d !r as d* Sun+ !osts t nd toin!r as #h n th )alu o& th shar d !r as s* /t is hard to #rit o1 a

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loss0 so #h n th )alu d !r as s su"stantiall'0 it !aus s !o(niti)dissonan! * You thin+0 / %aid R78 a shar * / thou(ht it #ould at l ast (ou% to R770 "ut no# it is do#n "' 89* That is lo(i!all' in!onsist nt0 soth asi st !ours o& a!tion is to " li ) 0 / do not !ar #hat th !urr nt

%ri! is* /t is #orth at l ast R780 so / a$ (oin( to #ait &or th %ri! tor !o) r* Su!h a " li & r turns lo(i!al !onsist n!' to 'our %s'!h * That isth as' thin( to do "ut not th $ost %rud nt* A losin( trad rar l' turnsaround0 and all th ho%in( in th #orld is not (oin( to $a+ th shar%ri! (o "a!+ to th ntr' l ) l* On has to do th hard thin(; Ad$it that'ou # r #ron(0 #rit o1 th loss0 and !los out th %osition* /t is hard todo* Wh n sun+ !osts ar hi(h0 so$ trad rs $a' ta+ on a &atalisti!outloo+* Th ' $a' " li ) that sin! th ' ha) lost a lar( a$ount o&$on ' an'#a'0 th ' ha) ) r' littl to los "' #aitin( to s #hatha%% ns n .t* /t is li+ thin+in(0 / ha) lost so $u!h alr ad' that /!annot los $u!h $or * Althou(h su!h thin+in( $a+ s on & l " tt ra"out a losin( trad 0 it is dan( rous %s'!holo(i!all'* On !ould los th

ntir in) st$ nt and .% ri n! .! ssi) str ss unn ! ssaril'* Th rar r al -nan!ial and %s'!holo(i!al !osts &or r &usin( to i(nor sun+!osts* /t is " tt r to )aluat th %ot ntial o& a trad "as d on #hat 'ou!an r alisti!all' $a+ in th &utur and assu$ that 'ou #ill not " a"lto r !ou% #hat 'ou ha) lost* /& 'ou !annot s ho# th trad !an turn

its l& around0 !ut 'our loss s* 4' doin( so0 'ou #ill r du! 'our%s'!holo(i!al and -nan!ial !osts in th lon( run* /t is us &ul to " a#aro& th #a's th sun+ !ost 1 !t $a' in u n! 'our tradin( d !isions* Donot l t it ( t th " st o& 'ou* No# that 'ou ar a#ar o& it0 'ou !anid nti&' this d !ision $a+in( "ias* Do not " a&raid to !ut 'our loss s and$o) on*

P3TT/NG 3P A STRONG DEFENCEWh n th d & nsi) lin $ n (o out onto th %la'in( - ld to %la'A$ ri!an &oot"all0 th ' $a+ sur that th ' ha) h l$ ts0 &a! $as+s0should r %ads and oth r %rot !tion* Th o%%osition is o&t n &or$ida"land th r is no r ason to unn ! ssaril' ris+ ( ttin( hurt* Wh n it !o$ sto tradin(0 it is also )ital to ha) %ro% r %rot !tion* Ad) rs &or! s $a'(o a(ainst 'our tradin( %lan0 and unl ss 'ou %rot !t 'ours l&0 'ou runth ris+ o& ( ttin( hurt0 and #ith tradin(0 that o&t n $ ans su"stantialhits to 'our tradin( a!!ount "alan! *

Th r is also a %s'!holo(i!al ad)anta( to (oin( out onto th %la'in(- ld #ith th %ro% r %rot !tion* Ta+in( th A$ ri!an &oot"all analo('



on st % &urth r0 !onsid r th uart r"a!+ #ho do s not ha) a #all o&t a$ $at s on th lin d & ndin( hi$* /& th ' !annot hold "a!+ tho%%osition0 h has to $a+ a %la' und r %r ssur * H $a' & l th n dto thro# th %ass too soon to a)oid ( ttin( sa!+ d* A!tin( und r

%r ssur o&t n l ads to an rror0 su!h as thro#in( an int r! %tion ordro%%in( th "all* Pro% r %rot !tion0 in !ontrast0 not onl' %rot !ts th

uart r"a!+ &ro$ %ossi"l in?ur'0 "ut it (i) s hi$ th ti$ ando%%ortunit' to thin+ $or !l arl'0 $a+ a !al$0 thorou(h sur) ' o& all%ossi"iliti s0 and thro# th "all to th %la' r #ho has th " st !han! o&$a+in( it to th (oal lin * /t is also tru #ith tradin(* /& 'ou ha) $on 'on th lin that 'ou ar a&raid to los 0 'ou $a' & l li+ th uart r"a!+#ho is a&raid o& ( ttin( sa!+ d* /t is hard to sta' r la. d and &o!us d*On & ls th %r ssur to a!t ui!+l' so as to a)oid har$* This o&t nr sults in i$%ulsi) d !isions0 and o) r th lon( haul0 a si(ni-!ant loss o& !a%ital* Ris+ $ana( $ nt %ro)id s not onl' %rot !tion &ro$ -nan!ialloss0 "ut also (i) s th trad r a %s'!holo(i!al ad)anta( *

5ust as #h n %la'in( s%orts0 th r is an o%ti$al l ) l o& n r(' that atrad r should tr' to $aintain* A tir d and listl ss %la' r !annot ) n %la'th (a$ 0 "ut on th oth r hand0 too $u!h n r(' is d tri$ ntal* Wh non is und r too $u!h %r ssur and totall' str ss d out0 h or sh!annot thin+ !l arl'* This is du to th -(ht:or: i(ht r s%ons * Th "od'

r s%onds to thr at "' &o!usin( all n r(' on i$%ulsi) r a!tions ton utralis th thr at* Wh n th str ss is on0 th r is a natural hu$ant nd n!' to narro# on 2s &o!us0 and r a!t s%ontan ousl'* Su!h i$%ulsi)r a!tions usuall' &ail to %rodu! a d sira"l out!o$ * /t is ?ust li+ th

uart r"a!+ #ho a!!id ntall' thro#s th "all into th hands o& tho%%on nt " !aus h & lt nor$ous %r ssur to a!t* For th trad r0%ro% r ris+ $ana( $ nt allo#s th trad r to !ontrol str ss and trad atth o%ti$al n r(' l ) l*

Th r ar $an' #a's to $ana( ris+* 4ut on o& th " st #a's is to

d ) lo% a ) r' d tail d tradin( %lan in #hi!h 'ou sti$at th %ot ntialris+ u% &ront* For .a$%l 0 'ou $a' sti$at ho# &ar th trad $a'$o) a(ainst 'ou* Wh n (oin( lon( on a s#in( trad 0 'ou $a' r asonthat th $ost th shar %ri! #ill (o a(ainst 'ou is th lo# o& th%r )ious # +* That #ill (i) 'ou an sti$at o& ris+ u% &ront* Man'tradin( .% rts also su(( st $a+in( sur that th a$ount o& ris+ 'outa+ on is onl' a s$all % r! nta( o& 'our tradin( !a%ital0 so that should'ou los on th trad 0 th loss #ill " at a $ini$u$* What ) r a%%roa!h'ou ta+ to $ana(in( ris+0 th %oint is that $ana(in( ris+ has "oth-nan!ial and %s'!holo(i!al ad)anta( s* Ps'!holo(i!all'0 'ou #ill & l a



s ns o& s !urit'* D % do#n0 'ou #ill +no# that should 'ou los on thtrad 0 it !annot hurt 'ou ) r' $u!h* /t is onl' a s$all %art o& 'our !a%ital0and 'ou +no# 'ou #ill sur)i) to $o) on to n # o%%ortuniti s* You #ill& l $or r la. d* And #h n 'ou & l !al$0 'our $ind #ill " o% n to all

%ossi"iliti s* You !an (au( th $ar+ t a!tion $or o"? !ti) l' than#h n und r %r ssur * /n all li+ lihood0 'our $ind #ill $o) #ith th$ar+ t0 and 'ou #ill " a"l to trad 1ortl ssl'0 and r a!h a % a+% r&or$an! stat *

P3TT/NG THE TRADE /N THE R/GHT PERSPECT/ EAs a no)i! trad r0 5ohn has ?ust %ut on his t nth trad * H is still n # to

tradin(0 "ut h is o%ti$isti! that h #ill " su!! ss&ul* H #ants tosu!! d* H thin+s0 / #ant to %ro) that / a$ a (ood trad r* / ho% / do# ll on this trad * Th out!o$ is !riti!al to th r st o& $' tradin(!ar r* 5ohn2s thou(hts and & lin(s ar und rstanda"l * Wh n ) r #start a $a?or nd a)our su!h as startin( uni) rsit'0 a n # ?o"0 or#hat ) r0 # #ant to su!! d* And it is ni! to ha) arl' su!! ss* Th-rst & # $o$ nts o& a $a?or li& turnin( %oint s $ s% !iall'si(ni-!ant* Wh n # ar not su!! ss&ul i$$ diat l'0 th initial l t do#no&t n haunts us &or a lon( ti$ 0 int rru%tin( our train o& thou(ht0 and

sha+in( our s l&:!on-d n! * D s%it th r asona"l ho% o& an arl'triu$%h0 ho# ) r0 it is )ital to + % th %ro% r % rs% !ti) #h na%%roa!hin( tradin(; on $ust al#a's thin+ o& th "i( %i!tur 0 th lon(run*An' sin(l trad is o& littl i$%ortan! * E.% ri n! d trad rs +no# this&a!t0 and li) "' it as i& it # r do!trin * E) n thou(h th ' $a' &o!us allth ir n r(' on th !urr nt trad 0 th ' +no# it is o& littl r al si(ni-!an!in th lon( run* You should also %ut a!h trad in %ro% r % rs% !ti) * /t is

ss ntial that 'ou !onsid r0 at l ast in th "a!+ o& 'our $ind0 that asin(l trad is ?ust on a$on( a s ri s o& trad s0 and that th "otto$lin is th o) rall out!o$ a!ross th s ri s0 not an' sin(l out!o$ *

Th r ar %s'!holo(i!al ad)anta( s to ta+in( this % rs% !ti) * Wh n 'oudo#n%la' th out!o$ o& an' sin(l trad 0 it is l ss !riti!al to 'our (o*Wh n )i # d as ?ust on in a lon( lin o& trad s0 it is asi r to t ll'ours l&0 /t do s not $att r* Th r #ill " $an' $or trad s ando%%ortuniti s to !o$ * /& th r is not $u!h ridin( on th out!o$ o& atrad 0 it #ill &r u% %r !ious %s'!holo(i!al n r('* You #ould not #ast

'our li$it d %s'!holo(i!al r sour! s n dl ssl' #orr'in( a"out thout!o$ * You #ill & l &r and !r ati) 0 r ad' &or #hat ) r ha%% ns



n .t* All 'our att ntion #ill " &o!us d on tradin( 'our %lan0 o"? !ti) l'anal'sin( ho# $ar+ t $o) s -t into 'our %lan0 and ta+in( d !isi)a!tion &or a !l an .it*Puttin( a trad in %ro% r % rs% !ti) is not onl' %s'!holo(i!al0 ho# ) r,

it also in)ol) s %ro% r ris+ $ana( $ nt* To sur)i) th l arnin( !ur) 0 ora s ) r dra#do#n0 'ou $ust li$it 'our ris+ on an' sin(l trad * 4'li$itin( 'our sta+ to a s$all % r! nta( o& 'our tradin( !a%ital0 thtrad #ill ha) $ini$al -nan!ial si(ni-!an! * /n r alit'0 it #ill " o& littl!ons u n! !o$%ar d to 'our o) rall a!!ount "alan! * M r l' " li )in(that a trad is insi(ni-!ant do s not #or+ ) r' # ll unl ss in r alit' it isnot si(ni-!ant* For .a$%l 0 it is hard to &ool 'ours l& into thin+in( that atrad is insi(ni-!ant i& 'ou ha) a $onth2s salar' on th lin on a sin(ltrad 0 and 'ou !annot a1ord to los it* Th str ss #ill " un" ara"l * /t isi$%ortant &or 'our %s'!holo(i!al and -nan!ial s !urit' that 'ou li$it thris+ on an' sin(l trad * A(ain0 thin+ in t r$s o& th "i( %i!tur * You donot n d to $a+ $on ' on a sin(l trad , th o) rall r sults a!ross as ri s o& trad s ar all that r all' $att r* Wh n startin( a n #

nd a)our0 it is natural to #ant to do # ll on ) r' sin(l att $%t* All o&on 2s ho% s and dr a$s $a' " %la! d on a & # + ' trad s0 &or

.a$%l * 4ut tradin( is $u!h too diJ!ult to thin+ 'ou !an ui!+l' $a+a & # trad s and " s t &or li& 0 #ith all 'our as%irations $ t* Th

su!! ss&ul trad r is in th (a$ &or th lon( haul* Th tradin( lor isr %l t #ith stori s o& trad rs #ho $ad hu( %ro-ts onl' to los it alllat r* You $a' s so$ "i( trad s in 'our !ar r0 #hi!h #ill %ro)idnu$ rous #ar stori s that 'ou !an us to nt rtain 'our &ri nds &orhours0 "ut #h n (oin( into a trad 0 it is )ital to + % th trad in %ro% r% rs% !ti) * /t is still ?ust on trad o& th $an' 'ou #ill $a+ in 'our!ar r*

L/ /NG TO TRADE ANOTHER DAY/ "l # out $' -rst tradin( a!!ount in !oll ( * /t is al$ost li+ 'ou ha)

to0 "ut ho% &ull' #ith a s$all a$ount o& tradin( !a%ital0 sa's Manu l* /nint r)i #s #ith no)i! and s ason d trad rs ali+ 0 'ou #ould ha) h ardth sa$ thin(0 as # ll as in !lassi! %u"lish d int r)i #s li+ Mar+ tWi ards* /t is ?ust a si$%l $att r o& $ath $ati!s* /& 'ou ris+ too $u!h0and do not $a+ nou(h #innin( trad s0 'ou nd u% in th r d soon r orlat r* 4ut $ast rin( th $ar+ ts ta+ s ti$ 0 and it is in 'our " st int r st

to sur)i) to trad anoth r da'*



Sur)i)al is + ' #h n tradin( th $ar+ ts* Wh th r it is sur)i)in( al arnin( !ur) as a no)i! trad r or sur)i)in( n # $ar+ t !onditions0

) r' trad r $ust &a! his or h r lon(:t r$ %ros% !ts* Th di1 r n!" t# n #innin( trad rs and thos #ho nd u% l a)in( th %ro& ssion

alto( th r has to do #ith ho# th ' a%%roa!h this ) ntualit'* Th#innin( trad r is a#ar and %rud nt #h n it !o$ s to lon( t r$ (oals*

Th trad r #ho "lo#s out0 in !ontrast0 is in a stat o& d nial0 a&raid toass ss his or h r !urr nt -nan!ial situation and ta+ %r !autions tosur)i) *

Th #innin( trad r is a#ar in that h or sh ad$its that tradin( is ris+'0and that %ro-ts ar not assur d* H or sh ad$its th ris+ and u lls a(a$"lin( $ ntalit'* Wh n a trad r is a&raid to &a! th odds o& losin(0thou(h0 th hidd n0 un .%r ss d & ar o& %ossi"l' "lo#in( out (na#s athi$ or h r* Th s un .%r ss d & lin(s o& i$% ndin( doo$ !an &rustrat'ou and th#art 'our 1orts at th #orst %ossi"l $o$ nt* Wh n & arlur+s in th "a!+ o& 'our $ind0 'ou $a' un+no#in(l' a!t i$%ati ntl' andi$%ulsi) l'* You $a' t nd to thin+0 /2$ tir d o& loo+in( &or %ro-ta"ls tu%s* / !annot #ait &or th id al $ar+ t !onditions an' lon( r* / a$ ?ust(oin( to . !ut a & # trad s and ho% &or th " st* Ta+in( su!h astan! to#ard tradin( do s not #or+ in th lon( run0 ho# ) r* /& 'ou#ant to $ast r th $ar+ ts0 'ou $ust %rud ntl' %lan ah ad*

What +ind o& %lans do 'ou $a+ I Do 'ou a!+no#l d( ho# $u!h 'ou#in and los or do 'ou dr ad &a!in( ho# # ll 'ou ar doin( and & d'our tradin( a!!ount a!h $onthI /t is all ri(ht to los and it is all ri(htto & d 'our tradin( a!!ount0 "ut it is )ital that 'ou ar &ull' a#ar o&'our a!tions*R alisti!all'0 ho# ) r0 it is n ! ssar' to $a+ sur that 'ou ar # ll!a%italis d* /t ta+ s $on ' to $a+ $on '; That is a r alit' o& tradin(that 'ou !annot i(nor * /n addition to !ar &ull' a!!ountin( &or ho# $u!h$on ' 'ou ha) to trad 0 it is n ! ssar' to al#a's loo+ at 'our ris+:to:

r #ard ratio " &or . !utin( a trad * Ma+ sur that 'ou ha) ar asona"l !han! o& $a+in( a %ro-t* So$ trad s $a' " too ris+' &or'ou to ta+ * Th ' $a' " sound and ha) a hi(h %ro"a"ilit' o& su!! ss0"ut unl ss 'ou ha) ad uat tradin( !a%ital0 th ' $a' not " ri(ht &or'ou* And i& 'ou . !ut th $0 'ou $a' not sur)i) th #orst !ass! nario* /t $a' " " tt r to -nd a trad that 'ou !an a1ord to ta+"as d on 'our a)aila"l !a%ital0 rath r than ris+ $on ' 'ou !an2t r all'a1ord to los * 4' loo+in( at 'our -nan!ial situation r alisti!all'0 'ou !anta+ st %s >su!h as standin( asid or ( ttin( a s !ond ?o" to "uild u%



ad uat tradin( !a%ital@ to $a+ sur 'ou sur)i) th l arnin( !ur)and $ast r th $ar+ ts*

LOS/NG MAY H3RT0 43T YO3 W/LL S3R / E/t2s a$a in( ho# $an' trad rs ha) lost "i( " &or th ' " !a$ $ast rtrad rs* Trad r Da)id K't not s0 .% rts in losin( ar not li& 2s los rs*/t2s ironi!0 "ut to " a #inn r 'ou ha) to l arn ho# to los * Winn rsha) &ar $or .% ri n! losin(0 " !aus th ' ( t u% o) r and o) ra(ain* A los r onl' los s on! 0 that2s #h' h is a los r* * Tru los rs in li&ar a&raid to ta+ !han! s* Th ' li) und r th assu$%tion that #inn rs&a! #in a&t r #in0 "ut littl do th ' +no#0 a #inn r &a! s $an' $or

s t"a!+s than su!! ss s*Da)id Nassar o"s r) s0 Loss s ar in )ita"l * Th ' ar as !o$$on toa!ti) trad rs as stri+ outs ar to $a?or l a(u "as "all %la' rs*4all%la' rs #ho !annot d al #ith stri+in( out or trad rs #ho " !o$d %r ss d "' r % at d loss s ar doo$ d to th "ush l a(u * /nint r)i #s #ith su!! ss&ul trad rs0 $an' ha) r %ort d .% ri n!in(si(ni-!ant s t"a!+s " &or $ast rin( th $ar+ ts* Dan r %ort d0 Onti$ / lost )irtuall' ) r'thin( in on or t#o da's***/ thin+ / lost &our or-) hundr d thousand dollars or so$ thin( li+ that* /t #as a s ) r

s t"a!+0 "ut Dan +n # ho# to los * At th ti$ 0 h thou(ht0 /t2s onl'!ash* /t2s not $' li& that / lost* / !an ( t it "a!+* /t2s not th nd o& th#orld* /2$ not losin( $' hous 0 $' !ar0 $' !r dit !ards0 or $' &ri nds*Si$ilarl'0 Don d s!ri" d th s t"a!+ h .% ri n! d #h n h -rststart d tradin( &ull ti$ ; / # nt &ro$ tradin( to %ro)id su%%l $ ntalin!o$ to tradin( to %ut "r ad on th ta"l &or a 'oun( &a$il'***Th -rst$onth #as a disast r* /t #as an a"solut disast r* /n a"out &our tradin(da's0 / (a) "a!+ a"out 89 o& #hat / had $ad in th -) $onths%r ! din( $' d !ision to trad &ull ti$ * At that %oint0 / # nt throu(h $'o#n % rsonal a"'ss that / had to %ull $'s l& out o&*Loss s and s t"a!+s ar %art o& li& * /n all #al+s o& li& 0 % o%l #or+

.tr $ l' hard to %i!+ th $s l) s u% a&t r s t"a!+s* Ha) 'ou ) ras+ d a sal s% rson ho# $an' !alls h or sh had to $a+ " &or( ttin( a sal I /n so$ !as s0 l ss than 79 o& th !alls l ad to a sal 0"ut i& ?ust on o& th !old !alls %a's o1 "i(0 th n it #as #orth all th

1ort0 ri(htI Corn ll %s'!holo(ist Dr* Da)id Dunnin( not s that $an'% o%l ar una#ar o& th ti$ and 1ort it ta+ s to " su!! ss&ul* Man'

!oll ( stud nts0 &or .a$%l 0 " li ) that r adin( a "oo+ ?ust on! issuJ!i nt0 and " !aus th ' studi d0 th ' & l th ' should ( t an A



$ar+* 4ut as+ th )al di!torian #hat h or sh did and 'ou #ill -nd outthat h or sh didn2t $ r l' r ad th "oo+ ?ust on! * /nd d0 / on!as+ d a )al di!torian o& a !o$% titi) uni) rsit' ho# sh #as a"l to ( tan A $ar+ in ) r' !lass* Sh said sh r ad ) r' r adin( assi(n$ nt

&our ti$ s to $a+ sur sh (ot it ri(ht /& 'ou as+ trad rs ho# $u!hti$ th ' %ut in0 'ou2ll -nd th sa$ thin(* Winnin( trad rs s% nd $osto& th ir ti$ insan l' &o!us d0 as 4ill Li%s!hut d s!ri" s it0 in thatth ' %ut in lat hours stud'in( th $ar+ t a!tion* Th ' %ut in $or ti$and %r %aration than 'ou $i(ht i$a(in 0 "ut do th ' al#a's #inI3n&ortunat l'0 $an' ti$ s th ' los * Losin( is not th %ro"l $0 "ut( ttin( .tr $ l' disa%%oint d " !aus 'ou lost is* /t is us &ul to thin+o%ti$isti!all'* /& 'ou %ut in nou(h hard #or+ and 1ort0 and r % at dl'%i!+ 'ours l& u% a&t r s t"a!+s0 'ou !an $ast r th $ar+ ts*Mast rin( th $ar+ ts is !hall n(in(* Man' % o%l tr' to trad %ro-ta"l'0"ut & # $a+ it* P rha%s th sin(l $ost si(ni-!ant &a!tor in $ast rin(th $ar+ ts is th "urnin( d sir to #in* Winnin( trad rs do #hat ) r itta+ s to #in*

CA3GHT OFF G3ARDWhat ) r !an (o #ron( #ill (o #ron(* That is Mur%h'2s La#* Man' % o%l

)i # this sound %i ! o& #isdo$ as r !tin( a % ssi$isti! outloo+* Th 'li+ to loo+ at li& throu(h ros !olour d (lass s* 4ut loo+in( at li&#ithout anti!i%atin( th do#nsid #ill s% ll trou"l #h n tradin( th$ar+ ts* O%ti$is$ is %o# r&ul0 "ut it $ust also " -r$l' (round d inr alit'* Thin(s (o #ron(* That is a &a!t o& li& 0 and unl ss 'ou %lan &orthin(s (oin( #ron(0 'ou #ill " !au(ht o1 (uard0 and it #ill $ an th

nd o& 'our tradin( !ar r*What !an (o #ron(I You na$ it* Your !o$%ut r !an "r a+ do#n* Your/nt rn t !onn !tion !an &ail* A #orld ) nt $a' i$%a!t th $ar+ ts as a#hol 0 and th#art 'our tradin( %lan* You $a' ( t u% on th #ron( sid o& th " d0 & l o) rl' str ss d0 and !ho+ durin( a !riti!al $o$ nt o&in) stin(* A(ain0 i& an'thin( !an (o #ron(0 it #ill* Rath r than & l%aral' d0 ho# ) r0 it is )ital that 'ou ta+ %r !autions* Wh n 'ou arstr ss d out0 it is as' to $a+ du$" littl $ista+ s* You !an tri% o) r'our $onitor !a"l and +no!+ it do#n0 or 'ou $a' " una"l to us 'our$ous %ro% rl'* You thin+ it sounds unli+ l'I /t ha%% ns0 s% !iall' #h nan ad) rs ) nt !at!h s 'ou o1 (uard and 'ou %ani!* Wh n 'ou ar not

r ad' &or so$ thin( to (o #ron(0 'ou ar li+ l' to " thro#n o1 "alan!to th %oint that 'ou !annot (ra! &ull' " !o$ r ori nt d*



Th " st #a' to sta' &o!us d on an' %ossi"l tradin( out!o$ is to!onsid r all %ossi"iliti s0 so that our .% !tations ar r alisti! rath r thanna ) and Poll'annaish* Wh n our .% !tations do not $at!h #hata!tuall' ha%% ns in our li) s0 # r a!t $otionall' and o&t n i$%ulsi) l'*

For .a$%l 0 althou(h # ha) a natural hu$an d sir to #in0 # o&t n&a! loss a&t r loss as a trad r* Tradin( is a %ro& ssion #h r 'ou should#or+ und r th assu$%tion that 'ou #ill s $or losin( trad s than#inn rs* E.% !tin( to #in is li+ l' to %rodu! $or disa%%oint$ nt than

u%horia* To th no)i! trad r0 s% !iall'0 this &a!t o& li& !an " str ss%rodu!in( and so$ #hat disa%%ointin(* 4ut tradin( is not th onl'%ro& ssion #h r on $ust &a! und sira"l out!o$ s0 and l arn to !o%#ith th $* Man' %ro& ssionals $ust d al #ith ) r'da' ) nts that ardistr ssin( and hard to a!! %t* >Consid r "as "all0 &or .a$%l , hittin(onl' 89 o& th ti$ is (r at*@Ho# on !o% s is all a $att r o& th .% !tations on has0 th out!o$ son anti!i%at s* Man' ti$ s0 s t"a!+s ar th rul 0 and #ithout th%ro% r $ind:s t0 su!h s t"a!+s !an " %aral' in(* As a trad r0 it is )italto ha) th ri(ht $ind:s t* Rath r than assu$ that on !an $a+ as'$on ' "' a!tin( on hal&:"a+ d tradin( %lans0 it is ss ntial to "r alisti!* /t #ill ta+ a (r at d al o& %r %aration to -nd (ood tradin(o%%ortuniti s* Th ' ar out th r 0 "ut on has to do th n ! ssar' #or+

to -nd th $* And #h n 'ou -nd th $0 and tr' to !a%itali on th $0th ' #ould not al#a's %rodu! a #in* That do s not n ! ssaril' $ an'ou should " disa%%oint d* /& 'ou r alisti!all' anti!i%at su!h s t"a!+s0'ou #ould not " !au(ht o1 (uard %s'!holo(i!all'* /& 'ou .% !t a loss0'ou #ill " a"l to a!! %t it $or asil' and 'ou #ill ta+ %r !autions0su!h as %ro% r ris+ !ontrol0 so it #ould not #i% out 'our tradin( a!!ount"alan! *Si$ilarl'0 i& 'ou +no# 'our /nt rn t s r)i! t nds to &ail0 'ou #ill d ) lo%a "a!+u% %lan* P rha%s 'ou #ill ( t a !a"l $od $ as # ll as a ADSL

lin * Wh' not ha) a s%ar la%to% !o$%ut r u% and runnin( in !asso$ thin( ha%% ns to 'our $ain !o$%ut rI /& 'ou +no# that 'ou ar

asil' %ut into a (ru$%' $ood0 ta+ %r !autions to %ut 'ours l& in a (ood$ood #h n th tradin( da' starts* G t .tra sl %* S+i% a tradin( da' i&'ou n d to and ( t %l nt' o& r st " &or 'ou ta!+l th $ar+ ts in

arn st* Tradin( is a - ld #h r a & # $ista+ s $a' r uir 'ou tos% nd a (r at d al o& ti$ r %airin( th da$a( * So it is )ital that 'ou$ini$is th %ot ntial da$a( u% &ront* Ta+ #hat ) r %r !autions 'oun d so as to nsur that 'ou !an . !ut 'our tradin( %lan a#l ssl'*



Th trad rs #ho do not anti!i%at ) r' %ossi"l ad) rs ) nt ar thtrad rs #ho nd u% losin( in th nd* Th r is nothin( % ssi$isti! a"out#or+in( und r th assu$%tion that a nu$" r o& thin(s !an (o #ron(0and so it is #is to ta+ %r !autions* /& 'ou ar r ad' &or an'thin(0 'ou

#ill " li+ l' to sur)i) * /& 'ou ar !au(ht o1 (uard0 ho# ) r0 'ou #ill "li+ l' to los 0 and los "i(*

PAN/CKED AND ST3NNED 5ohn is in a %ani!* H has " n %ushin( hi$s l& all $onth to r a!h as% !i-! -nan!ial o"? !ti) 0 "ut h !annot s $ to $a+ it* /n a last dit!h

1ort0 h has $ad a "i( trad and h is r ad' to . !ut it0 "ut h

!annot ( t it don * H is so an.ious0 a(itat d0 and &rustrat d that h!annot do th $ost si$%l tas+* 5ohn is ha)in( a trad r2s %ani! atta!+*H is so & ar&ul that h ?ust !annot &un!tion*Ha) 'ou ) r & lt li+ 5ohnI Wh n & ar s ts in0 'our "od' r a!ts #ithsu!h a(itation that nothin( s $s to (o ri(ht* You start doin( du$"thin(s* E) n th $ost !o$$on%la! tas+ !annot ( t don 0 or 'ou $a+stu%id $ista+ s0 li+ !losin( th #ron( trad or r adin( a !hartin!orr !tl'* You !an " so a(itat d that 'ou a!!id ntall' +i!+ th %o# r!a"l &or 'our !o$%ut r out o& th #all so!+ t* Th hu$an "od' is #ir d

to %ani! at ti$ s* Th r ar )ast indi)idual di1 r n! s* So$ % o%l ar!al$ no $att r #hat0 "ut oth rs ar asil' unn r) d* N ) rth l ss0#h n %ani! s ts in0 our att ntion is trun!at d and our o%tions arli$it d; W ith r stand u% and -(ht or run a#a' to sa) ours l) s*

Th s ar th t#o "asi! instin!tual r s%ons s #h n %ani! s ts in* So$trad rs r a!t to %ani! and &rustration "' thro#in( th ir $ous out th#indo#* That is ho# "asi! th hu$an ani$al !an " at ti$ s* 4ut a(ain0th r ar )ast di1 r n! s* Th r is no on ri(ht #a' to trad and $an'di1 r nt )ia"l trad r % rsonaliti s* Th li$itation is not in ha)in( th

#ron( % rsonalit' &or tradin(* Th li$itation is in tr'in( to " so$ onthat 'ou ar not* /& 'ou ar asil' %ani!+ d0 it is )ital that 'ou id nti&'this %ot ntial dra#"a!+ and #or+ around it*Loo+ at 'our % rsonalit' !los l'* Ar 'ou th +ind o& % rson #ho $a'ha) a tradin( %ani! atta!+I Do 'ou ( t so a(itat d at ti$ s that 'ou!annot thin+ strai(htI /& 'ou ar %ron to su!h a $alad'0 'ou !an #or+around it*

Li$it 'our ris+* Th $or 'ou ha) at sta+ 0 th $or a(itat d 'ou

ar li+ l' to " !o$ * /& 'ou ris+ littl 0 thou(h0 'ou #ill +no# in th "a!+ o&



'our $ind that 'ou !an handl th #orst !as s! nario* /t #ill !al$ 'ou

do#n*

Al#a's r $ $" r that 'ou !an s!al "a!+ 'our -nan!ial (oals i&

n ! ssar'* /& 'ou !annot r a!h 'our (oals0 do not #orr' a"out it* Do #hat

'ou !an do* You #ill -nd that 'our & lin(s o& a(itation ar (r atl' r du! d

#h n 'ou s t $or $od st (oals*

3s a sto!+ "ro+ r i& 'ou n d to * Althou(h # ar in th $idst o& a

t !hnolo(' "oo$0 $an' %ro& ssional trad rs still !all th ir sto!+ "ro+ r to

%la! a trad * /t $a' s $ old &ashion d0 "ut so$ trad rs r alis that

a!tuall' %la!in( trad s %uts th $ on d( * Th ' +no# that th ' & l

!al$ r #h n so$ on ls a!tuall' %uts th ir $on ' on th lin * You do not ha) to " th id al trad r to %ro-t in th $ar+ ts* /nd d0th $'th o& th id al trad r is ?ust a $'th* Th r ar $an' di1 r nt+inds o& % o%l tradin( th $ar+ ts %ro-ta"l'* Th + ' to su!! ss is to "tru to 'ours l&* Gau( #hat 'our % rsonalit' is0 and #or+ around it i&n ! ssar'* Do not " a&raid to " 'ours l& and to ta+ st %s to !han('our tradin( $ thods to suit 'our % rsonalit'* /& 'ou ar %ron to an.i t'

atta!+s #hil tradin(0 s!al "a!+ and !al$ do#n* You #ill -nd that 'ou!an thin+ $or !l arl' and trad $or %ro-ta"l'*

AL3E /N EST/NG/& 'ou ha) onl' " n tradin( &or th last :7 ' ars0 'ou $i(ht !hu!+l atth id a o& tradin( "as d on )alu * /t #as durin( th s %ast ' ars thatt !hni!al anal'sis " !a$ th standard &or $a+in( tradin( d !isions* For

thos #ho ha) " n tradin( &or a lot lon( r0 'ou !an r !all th da's#h n th )alu o& a !o$%an' #as -(ur d into th anal'sis to %ur!hasor s ll* PE Ratios0 Earnin(s P r Shar 0 Good#ill : in) stors and trad rsa!tuall' loo+ d at th s -(ur s* Anal'st !o$$ ntari s # r anal's dand tradin( %lans $ad a!!ordin(l'* Th $ost su!! ss&ul o& trad rs # r+no#n &or th ir h'"rid t !hni!alQ)alu %lans* Th r ! nt s!andals o&WorldCo$0 Enron0 and th hundr ds o& la#suits a(ainst *!o$ !o$%ani sar )id n! that a lot o& this $at rial in&or$ation has " n o) rloo+ d&or a lon( ti$ * Wh n th dot!o$ .!it $ nt too+ th $ar+ ts "' stor$0th % r! %tion and s nti$ nt &or ho# a trad should " $ad !han( d*

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/nitial %u"li! o1 rin( >/PO@ a&t r /PO0 % o%l in) st d in !o$%ani s#ithout ) n ha)in( an und rstandin( o& #hat th !o$%ani s did*Hundr ds o& thousands #ho # r $a+in( $on ' # r !on)in! d thatth ' +n # ho# to trad * A&t r all0 th ' $ad %ro-ts so asil'* 4ut toda'0

al$ost all o& th s % o%l ha) &all n "' th #a'sid and ta+ n u% oth r!ar rs a&t r su1 rin( tr $ ndous loss s*

Th $ar+ ts ha) !han( d0 and as a trad r0 'ou n d to r !o(nis andund rstand th s !han( s* Fro$ .% ri n! 0 'ou ar li+ l' to +no# thatth $ar+ t %att rns t nd to )ar' ) r' & # # +s0 so$ ti$ s ) r' & #da's0 di1 rin( a$on( s !tors and s% !i-! issu s* Thos #ho ha) ) r'lon(:t r$ .% ri n! also +no# so$ thin( ls a"out th $ar+ ts0so$ thin( that $ost in .% ri n! d trad rs o) rloo+* This is that $ar+ t%att rns also !han( on a $u!h (rand r s!al 0 o) r d !ad s0 &ro$ a$u!h $or o) r)i # % rs% !ti) * W ar ri(ht no# .% ri n!in(!han( s that ar (oin( to " +no#n as !riti!al and $a?or turnin( %ointsin th !ono$i!s and "usin ss !li$at s o& th #orld* Do s this $ an)alu in) stin( is (oin( to %la' a "i(( r %art in tradin( %lansI /t isdiJ!ult to sa'0 "ut as a trad r0 'ou al#a's ha) to " on th loo+out &or!han( s in th $ar+ ts* Consid r ho# )alu in) stin( $i(ht " (in to%la' a rol in 'our tradin(* 4 %r %ar d to ada%t 'our %lan to sta' in s'n!#ith th $ar+ ts*

R/SK TAK/NG ERS3S R/SK SEEK/NGPro$in nt "usin ss l ad rs o&t n %ortra' th $s l) s as ris+ ta+ rs*

Th r ar nu$ rous an !dot s o& ntr %r n urs #ho %ut it all on thlin 0 too+ a "i( ris+0 and $ad a "i( #in* Th r is so$ )id n! 0ho# ) r0 that su!! ss&ul ntr %r n urs and trad rs ar not ris+ ta+ rs atall* /nd d0 thos #ho ar su!! ss&ul in "usin ss ar $or li+ l' to a)oidris+ rath r than s + it out* A di!tionar' d -nition o& ris+ is; a !ours o&a!tion that in)ol) s dan( r or ha ard* To so$ .t nt0 an'on #ho$a+ s a trad is ta+in( a ris+ in that it is %ossi"l that a (r at d al o& th$on ' !an " lost* This loss is a dan( r or ha ard*Ris+ ta+ rs !an " distin(uish d &ro$ ris+ s + rs0 ho# ) r* A ris+ ta+ ris so$ on #ho .%os s hi$s l& or h rs l& to a ris+0 su!h as #h n a% rson $a+ s a trad * A ris+ s + r0 in !ontrast0 is a % rson #ho li+ sris+0 s +s it out0 and n?o's th thrill o& ta+in( a ris+* A ris+ ta+ r do snot n ! ssaril' n d to " a ris+ s + r* Su!! ss&ul trad rs $a' "

#illin( to ta+ a ris+0 "ut th ' do not s + th $ out* Th ' ar not(a$"l rs #ho n?o' th thrill o& th %ossi"ilit' o& losin( a (r at d al o&



$on '* /nst ad0 th ' ta+ a !al!ulat d ris+* Th ' $ini$is th a$ount o& ris+ on an' sin(l trad and loo+ at th %ot ntial do#nsid o& a trad *

Th ' !onsid r th %ossi"ilit' that on $a' &a! a s ri s o& losin( trad sand should this ha%% n0 th ' ass ss to ha) nou(h !a%ital in th ir

tradin( a!!ount to $a+ it throu(h this run o& "ad lu!+* 4' ris+in( onl' ar lati) l' s$all a$ount o& !a%ital on an' sin(l trad 0 th ' %rot !t th ir!a%ital should th ' &a! s ) ral losin( trad s*/n !ontrast0 ris+ s + rs ar % o%l #ho do not loo+ at th !ons u n! so& th ir a!tions* Ris+ s + rs o&t n a!t i$%ulsi) l'0 and a%%roa!h a!htrad as %ot ntiall' th on "i( trad that $a' s t th $ u% &or li& * Thris+ s + r is r ad' to $a+ a "i( " t0 #hil th su!! ss&ul trad r $a'" #illin( to ta+ a ris+0 "ut not that $u!h o& a ris+* Su!! ss&ul trad rsalso ha) di1 r nt .% !tations r (ardin( ho# th !a%ital in th irtradin( a!!ounts in!r as s* Ris+ s + rs ho% that th ir !a%ital #illin!r as ra%idl'0 "ut su!! ss&ul trad rs ar #illin( to l t th ir !a%italin!r as in a slo# st ad' lin ar &ashion* Th ' +no# that su!! ss !o$ sin s$all st %s* Ris+ s + rs2 !a%ital t nds to in!r as and d !r as in a

?a(( d %att rn0 and usuall' nds u% an o) rall d !r as 0 rath r than anin!r as *Wh n 'ou ar tradin(0 do not ta+ unn ! ssar' ris+s* R $ $" r0su!! ss&ul trad rs $a' " ris+ ta+ rs0 in that th ' ar #illin( to los a

s$all a$ount o& $on '0 "ut th ' ar not ris+ s + rs* Th ' #ant to li$itth ir loss s on an' sin(l trad 0 $a+ a slo# "ut st ad' %ro-t0 and%ati ntl' #ait &or th ir !a%ital to in!r as *

S3NK COSTS You ha) in) st d =79 o& 'our tradin( !a%ital in a shar that 'ouranal'sis had %r di!t d #ould in!r as * Your .% !tations ha) not " nsu%%ort d0 ho# ) r* Th %ri! has " n st adil' d !linin(* You thin+0 /did su!h a !ar &ul and d tail d anal'sis* / ha) s% nt a lot o& ti$stud'in( th &unda$ ntals o& this !o$%an'* / !annot " li ) it is (oin(do#n* At this %oint0 'ou $a' ho% that th %osition #ill r ) rs 0 andr &us to !los it out* /t is asi r to + % it o% n than &a! th r (r t o& a"ad d !ision and a!! %t th loss* This is !all d th sun+ !ost 1 !t; A% rson in!r as s on 2s !o$$it$ nt to a losin( %osition " !aus a (r atd al o& ti$ 0 1ort0 andQor $on ' has " n s% nt* Th $ost o")ious and"latant .a$%l o& th sun+ !ost 1 !t is #h n # ha) in) st d a lar(

% r! nta( o& our !a%ital in a losin( %osition and # do not #ant toad$it that # ha) lost #hat # ha) in) st d* Ho# ) r0 th r ar



oth r $or su"tl #a's o& .% ri n!in( th sun+ !ost 1 !t* Most % o%ldo not !onsid r th $0 "ut th ' $a' still in u n! in) st$ nt d !isions*

Th old ada( ti$ is $on ' illustrat s ho# th r ar oth r #a's thaton !an los $on ' "' ?ust %uttin( in ti$ and 1ort into an

in) st$ nt* For .a$%l 0 l t us sa' that 'ou r s ar!h a %arti!ular!o$%an' !los l'* You r ad r %orts on th &unda$ ntals o& th !o$%an'0and 'ou &ollo# th shar %ri! on a dail' "asis0 notin( %ri! !han( s that!orr s%ond to !o$%an' announ! $ nts and si(ni-!ant ) nts in thindustr'* Th $or 1ort 'ou .% nd on %r %aration and anal'sis0 th(r at r th sun+ !osts 'ou #ill .% ri n! * Th r is a stron( t nd n!' to

?usti&' th ti$ and 1ort 'ou ha) .% nd d* Wh' s% nd so $u!h ti$and 1ort stud'in( this !o$%an' i& 'ou do not %lan to in) st in itI Thist nd n!' to #ant to ?usti&' 'our " ha)iour #ill (na# at 'ou0 and i& 'ouar not a#ar o& it0 and ar not tr'in( to !ontrol it0 'ou #ill ha) at nd n!' to #ant to in) st >lon( or short@ in th shar 0 ) n #h n 'ou+no# 'ou should sta' out0 and #ait &or anoth r o%%ortunit'* /t is us &ul to" a#ar o& this su"tl 1 !t* As+ 'ours l&0 Do / #ant to in) st " !aus/ s a r al o%%ortunit' or a$ / $ r l' tr'in( to ?usti&' th a$ount o&

1ort / ha) %ut inI /t is i$%ortant to " a#ar o& ho# this su"tl ' t%o# r&ul in u n! !an l ad 'ou to $a+ a d !ision 'ou #ill r (r t lat r*O) r!o$in( this su"tl in u n! is diJ!ult* /t is a (ood id a to stud'

!o$%ani s !los l' and !a%italis on an o%%ortunit' #h n on aris s0 "utdo not o) rdo it* R $ $" r that .% ndin( too $u!h 1ort has a su"tli$%a!t* Tr' to o) r!o$ it* R $ind 'ours l& that 'ou do not ha) toin) st* Your r s ar!h and %r %aration #ill %a' o1 "i( so$ da'0 "ut l arnto #ait &or th ri(ht o%%ortunit'* 4 a#ar o& "oth th su"tl and "latant#a's that th sun+ !ost 1 !t !an in u n! 'our " ha)iour* Tr' to!onsid r #h th r or not sun+ !osts ar in u n!in( 'our d !isions* Tr' torationall' !ount ra!t th $0 and %r ) nt th $ &ro$ ( ttin( th " st o&'ou*

E TREMESE.tr $ %ri! $o) $ nts ar a !o$$on %it&all &or in .% ri n! d and

$otionall' s nsiti) trad rs* For th last s ) ral ' ars0 # !onsist ntl'sa# .tr $ )olatilit' in th $ar+ ts* So$ trad rs ada%t d th ira%%roa!h to ta+ ad)anta( o& it #hil oth rs # r %ush d out o& th$ar+ ts* Wh n 'ou .% !t a ! rtain l ) l o& )olatilit'0 'ou !an s t sto%

loss s and %ro-t o"? !ti) s a!!ordin(l' and " l ss li+ l' to su!!u$" to$otional r a!tions* 4ut #h n th $ar+ ts ar not !onsist ntl' )olatil



and 'ou ha) th o!!asional .tr $ %ri! $o) $ nt0 it is &ar $ordiJ!ult to %ro% rl' $ana( 'our trad and sta' !l ar o& 'our $otions*/n r s%ons to this id a o& .tr $ %ri! $o) $ nt " in( a %ot ntial%it&all0 $an' trad rs #ill " ui!+ to sa' that sto% loss s ar th r &or

%rot !tion #h n th r is an .tr $ %ri! $o) a(ainst th ir %osition*Mor .% ri n! d trad rs $i(ht !hu!+l at that*** Good lu!+ #ith $a+in('our .it trad * Pri! s #ill " &ar " 'ond 'our sto% loss %oints " &or 'ou!an ( t an . !ution* /t is tru that sto% loss s #ill h l% to (au( 'oursituation and !an (i) 'ou a tar( t %ri! to at l ast tr' to .it at* 4ut it isalso tru that #h n th r is .tr $ %ri! $o) $ nt0 it is ) r' diJ!ultto ( t th . !ution 'ou n d*G n rall'0 #h n th .tr $ %ri! $o) is a(ainst 'ou0 it is $or%ro-ta"l to #ait it out* Wh n th r is a "i( !han( in %ri! in a ) r'short a$ount o& ti$ 0 th r #ill usuall' " 0 at th ) r' l ast0 a s$allr tra! $ nt0 (i)in( 'ou $or !ontrol o) r an . !ution at a " tt r %ri! *

Th r is on + ' .! %tion to this* /& 'our %osition is in lin #ith a stron($ass !ons nsus > s% !iall' #ith hi(h s% !ulation@ and th .tr $$o) !hall n( s th r asonin( " hind that !ons nsus0 'ou ar usuall'&ar " tt r o1 .itin( as soon as 'ou !an*Th i%sid o& th .tr $ %ri!$o) $ nt %it&all is that th %ri! ) r' ui!+l' $a+ s a "i( $o) in 'our&a)our* /n th s !ir!u$stan! s0 'ou ar li+ l' to ( t a ui!+ . !ution too

soon* /& 'ou #ait too lon( to .it0 'ou $i(ht los th ad)anta( and ndu% ( ttin( an . !ution at a #ors %ri! 0 on th r tra! $ nt* /n th s!as s0 it is ( n rall' $or %ro-ta"l to tr' to ( t th " st . !ution" &or th $o$ ntu$ o& th $o) di s do#n* Fa$iliaris 'ours l& #ithth )olatilit' l ) l o& th shar 'ou ar tradin( and in!or%orat rul s &orth s situations in 'our tradin( %lan*

E /T FORM3LASE) r' (ood trad r has a s'st $ or $ thodolo(' &or d t r$inin( sto%loss s* Su!h s'st $s ar usuall' s ts o& &or$ulas and !rit ria "' #hi!hsto% loss l ) ls ar auto$ati!all' s t* E.% ri n! d trad rs (o a st %" 'ond th !on! %t o& th sto% loss "' usin( trailin( sto%s0 #hi!h as %arto& th .it t !hni u 0 th &or$ulas and !rit ria us d ar ) r' i$%ortantto th su!! ss o& a trad * /n .% ri n! d trad rs o&t n $a+ th #ron(!hoi! s #h n it !o$ s to sta"lishin( a sto% loss $ thodolo('* /n an

1ort to auto$at th ir sto% loss d t r$inations0 th ' t nd to us o) r:

si$%li- d &or$ulas andQor !rit ria0 to th %oint that th ' a%%l' anin 1 !ti) &or$ula " li )in( that it #ill #or+* /n su!h !as s0 th ir sto%



loss $ thodolo(' " !o$ s a ( n ralis d0 $ !hani!al s'st $ that do snot addr ss its %ur%os * This r sults in $is!al!ulat d sto% loss l ) ls0#hi!h #ill !aus th trad r to .it out o& a trad ith r too arl' or toolat *

On o& th $ost !o$$on and si$%l st $ thods o& s ttin( a sto% lossl ) l is to s t th l ) l as a % r! nta( o& th ntr' %ri! * For .a$%l 0 ada' trad r $a' d !id that i& th %ri! r ) rs s "' =9 o& his ntr' %ri!a(ainst his %osition0 h #ill .it* This t'% o& si$%li- d $od l is not ) r'us &ul* /& th trad r is tradin( in hi(h l ) ls o& )olatilit' on a %arti!ularda'0 his sto% loss l ) ls #ill " !o$%l t l' in 1 !ti) and #ill !aus hi$to $a+ th #ron( !hoi! s* Additionall'0 this t'% o& $ thodolo(' do snot in!or%orat th trailin( sto% t !hni u * To us a trailin( sto% in this

.a$%l 0 th trad r #ould ha) to ad?ust #hat h !onsid rs his ntr'%ri! as th %ri! $o) s in his &a)our* For .a$%l 0 i& th %ri! # nt u%=9 in his &a)our0 h #ould !onsid r his ntr' %ri! to " at th 69 $ar+0and th r &or his sto% loss l ) ls #ould shi&t* Th %ri$ar' %ur%os o&'our .it &or$ula>s@ is to id nti&' th %oint at #hi!h 'our r ason &or

nt rin( th trad is no lon( r )alid or at #hi!h l ttin( 'our %ro-ts run" 'ond 'our %ro-t o"? !ti) s is no lon( r ?usti- d* And sin! 'ou #illha) di1 r nt r asons &or nt rin( di1 r nt trad s0 ha)in( a s t o& .it&or$ulas #ill allo# 'ou to !hoos th ri(ht on d % ndin( on #hat

r asons 'ou nt r d th trad #ith*

D/SC/PL/NE AND SELF:CONTROL You ha) %ro"a"l' h ard it !ountl ss ti$ s; Dis!i%lin is a + ' &a!tor intradin( su!! ss* Dis!i%lin is $ ntion d in al$ost ) r' tradin( "oo+and in th titl o& $an'* Wh' is dis!i%lin so !ru!ialI Tradin( is lar( l' a$att r o& !a%italisin( on odds* Assu$in( a (i) n tradin( strat (' has a%ast % r&or$an! r !ord o& <790 &or .a$%l 0 it is a $att r o& odds thatth %arti!ular strat (' #ill o"tain that r !ord in th &utur * /t $a' not*3nanti!i%at d &a!tors0 su!h as a !han( in $ar+ t !onditions !an (oa(ainst th strat ('0 di$inishin( its % r&or$an! r !ord* A la!+ o&dis!i%lin $a+ s $att rs #ors * Assu$in( th strat (' do s ha) a hi(h%ro"a"ilit' o& &utur su!! ss0 th onl' #a' to ta+ ad)anta( o& th la#o& lar( nu$" rs is to . !ut th trad a#l ssl' on as $an' o!!asionsas %ossi"l and as d -n d "' th (uid lin s o& th tradin( %lan* Thdis!i%lin d trad r d !isi) l' trusts th strat (' nou(h to !o$$it &unds

to th %lan0 and (i) s th %lan a r asona"l !han! to !a%italis on thodds* Th undis!i%lin d trad r0 in !ontrast0 #a) rs* H or sh &ollo#s th



tradin( %lan in!onsist ntl'0 tradin( th %lan o!!asionall' #hil (oin( adi1 r nt #a' at oth r ti$ s* Dis!i%lin is ind d a + ' in(r di nt tosu!! ss0 "ut not ) r'on has a hi(h l ) l o& s l&:dis!i%lin * /t is #orthd t r$inin( #h r 'ou stand on this trait and0 i& 'ou la!+ dis!i%lin and

s l&:!ontrol0 #or+ to "uild it u%*Dis!i%lin and s l&:!ontrol ar # ll:studi d % rsonalit' traits* So$% o%l ar hi(hl' dis!i%lin d and ) r' s l&:!ontroll d* Th ' s!ru%ulousl'&ollo# rul s0 and ar !ar &ul to !ontrol th ir i$%uls s* You +no# th t'% ,th ' %a' o1 th ir !r dit !ards ) r' $onth0 ar n ) r lat &or ana%%oint$ nt0 and !ar &ull' %lan ) r' d tail o& th ir li) s* Althou(hth s !hara!t risti!s $a' " id al &or tradin(0 th r is a do#nsid ; Su!h% o%l t nd to ha) trou"l ta+in( ris+s* Th ' %r & r a sur thin(0 andtradin( out!o$ s ar rar l' sur thin(s* Trad rs t nd to %r & r li)in( alittl on th #ild sid * Th ' $a' not r !+l ssl' s + out ris+0 "ut th ' donot $ind it* R lati) l' s% a+in(0 th ' t nd to la!+ dis!i%lin and !ontrol*P rha%s that is #h' so $an' tradin( "oo+s and !oa!h s -nd it n ! ssar'to %r a!h th )irtu s o& s l&:!ontrol* Ho# is 'our dis!i%lin and s l&:!ontrolI Do 'ou ha) trou"l sti!+in( to 'our tradin( %lanI Do 'ou lon(&or $or dis!i%lin and s l&:!ontrol #h n it !o$ s to 'our tradin(I/& 'ou ha) trou"l #ith dis!i%lin 0 'ou $a' #ant to tr' a sti$ulatin(

. r!is to in!r as 'our a#ar n ss; O"s r) 'our l ) l o& s l&:!ontrol in

'our ) r'da' li& and tr' to (ain $or !ontrol* Ho# $u!h dis!i%lin ands l&:!ontrol do 'ou %ra!ti! in 'our ) r'da' li& I Ar 'ou lat &ora%%oint$ ntsI Do 'ou s% nd $or $on ' a!h $onth than 'our "ud( tallo#sI Do 'ou &r u ntl' -nd 'ours l& "r a+in( %ro$is sI /t is notn ! ssaril' th !as that a dis!i%lin d trad r is dis!i%lin d in all as% !tso& on 2s li& 0 "ut it h l%s* Th li& strat (i s # us in ) r'da' li& $a'"l d o) r into our tradin( li& * /& 'ou o&t n o) rs% nd0 o) r at0 or ha)an unr strain d n d &or %l asur 0 'ou $a' -nd $aintainin( s l&:!ontroland dis!i%lin #hil tradin( a littl $or diJ!ult than oth rs* So tr' this

. r!is ; s% nd a & # # +s tr'in( to !ontrol as $u!h o& 'our li& as%ossi"l * Pi!+ s% !i-! ar as #h r 'ou !an (ain $or s l&:!ontrol*Control 'our !alori inta+ 0 th $on ' 'ou s% nd0 and ti$ s% nt inl isur a!ti)iti s* S ho# # ll 'ou do* /t $a' !han( 'our r & r n!%oint* You $a' soon dis!o) r that 'ou rar l' !ontrol 'our i$%uls s0 and!an do $u!h " tt r* And this in turn $a' %ositi) l' in u n! 'our a"ilit'to sti!+ #ith 'our tradin( %lan* /t is #orth tr'in(* Dis!i%lin is th + ' totradin( su!! ss0 and it is )ital that # do ) r'thin( that # !an toin!r as it*



THE 4REAKE EN PO/NTOn! a trad is nt r d0 th r ar t#o %ossi"l out!o$ s; on th li(htsid it !an $a+ $on ', on th dar+ sid it !an los * 4 t# n th li(ht

sid and th dar+ sid is th "r a+ ) n %oint0 and " !aus it is in:" t# n0 it has %s'!holo(i!al si(ni-!an! * /t s %arat s & ar and ho% onth dar+ sid and (r d on th li(ht sid * Th sid 'ou ar on d t r$in sho# 'ou s this &ul!ru$* Wh n on th dar+ sid o& a trad 0 th"r a+ ) n %oint is a s%ot o& li(ht that ins%ir s ho% * Hu$ans ha) anatural t nd n!' to a)oid ris+ and loss* Wh n in th $idst o& a losin(trad 0 $an' t nd to hold on and ho% that th los r #ill turn around andr turn to th "r a+ ) n %oint0 #h r th r $a' " no %ro-ts0 "ut at l astth r ar no loss s* 4ut ho%in( o&t n l ads to loss s in th nd* Ho% has

no %la! in $a+in( tradin( d !isions* Wh n %uttin( on a trad 0 th ntr'%oint and th %rot !ti) sto% should " !al!ulat d u% &ront* /& this is don%ro% rl'0 th r is no r ason to l t ho% 0 or an' oth r $otion0 in u n!'our tradin( d !isions* You should trad al$ost $ !hani!all'* /& th trad(o s a(ainst 'ou0 si$%l' .it on! th sto% %ri! is hit* Do not l t ho%%la' a rol in 'our tradin( %lan* Th r ar $an' (ood r asons to !ut 'ourloss s0 rath r than ho% &or th los r to turn around* Wh n 'ou ar in alosin( trad 0 'ou ar rar l' alon * Man' oth r trad rs ar also lon(0 &or

.a$%l 0 tr'in( to .it #ithout a loss* And th r ar shorts d & ndin(this ar a to %rot !t %ro-ts* /t is unli+ l' that 'ou !an " th )i!tor o& this!ont st0 so th " st !hoi! is to ?ust !ut 'our loss s0 and $o) on to thn .t trad *

Th )anta( %oint &ro$ th li(ht sid is uit di1 r nt* /n th $idst o& a#innin( trad 0 trad rs t nd to ta+ %ro-ts too arl'0 a(ain " !aus th 'ar a) rs to ris+ and %ot ntial loss* 4' .itin( arl'0 ho# ) r0 th ' donot l t th ir %ro-ts run* This li$its th si o& th #innin( trad s0 so thata!ross a s ri s o& trad s0 th o) rall %ro-t is di$inish d* 4ut th r is a

#a' to lo!+ in %ro-ts0 l t th trad run a littl lon( r0 and %il on a littl$or %ro-t* On! th %ro-t .! ds th initial sta+ 0 a sto% !an "%la! d at th "r a+ ) n %oint* This strat (' l ts 'ou lo!+ in so$ initial%ro-ts #hil )irtuall' li$inatin( ris+* Th $ost 'ou !an los is "ro+ ra(!osts* 4 sid s r du!in( -nan!ial ris+0 th $otional str ss is also

li$inat d* And r du! d str ss $ ans 'ou !an )aluat th "i(( r%i!tur $or o"? !ti) l'*3n&ortunat l'0 $an' no)i! trad rs ar so !onsu$ d #ith !a%turin( a%ro-t and sho#in( a (r n %ro-tQloss stat $ nt that th ' !annot &ollo#

throu(h #ith $o)in( th sto% loss to th "r a+ ) n %oint* Th ' & l thstrat (' inhi"its th $ and $a' li$it th ir %ot ntial %ro-ts* Th ' #r stl



#ith $o)in( th sto% loss "a!+ to its ori(inal %oint0 #h r th ' nt r d0or si$%l' !an! llin( it alto( th r* This !an " disastrous to a tradin(a!!ount* Sto% loss s should n ) r " !han( d to a $or har$&ul %ositionor !an! ll d alto( th r* Su!h %ra!ti! s #ill stir u% $otions that

ad) rs l' s#a' tradin( d !isions0 and ) ntuall' l ad to on 2s d $is *Dis!i%lin is al#a's th " st strat ('* Wh th r on th dar+ sid or thli(ht sid o& th "r a+ ) n %oint0 it is us &ul to r alis its %s'!holo(i!alsi(ni-!an! * Wh n on th li(ht sid 0 'ou #ill " $oti)at d "' & ar andho% * Whil on th li(ht sid 0 'ou #ill " $oti)at d "' (r d* /t is )ital tor !o(nis th s $otional t nd n!i s and do ) r'thin( %ossi"l to!ount ra!t th $ and r $ain o"? !ti) *

REWARD YO3RSELF Th dot:!o$ !ra %rodu! d uit a & # instant $illionair s0 "ut $an' o& th $ lost it al$ost as ui!+l' as th ' had $ad it* Th s da's0 % rha%sso$ o& th $ #ish th ' had s% nt a & # o& thos %ro-ts on thin(s th '!ould still n?o'* Th r is th stor' o& a hi(h s!hool %u%il #ho h ld 778888 insid r shar s in a !o$%an' h h l% d &ound0 a $a+ r o& /nt rn thard#ar * Th !o$%an' # nt %u"li! at around 6B a shar 0 and th n$o) d st %l' hi(h r o) r th n .t s ) ral $onths to a % a+ o& around

6=8* At that %ri! 0 our h ro #as #orth rou(hl' BB $illion, on %a% r0that is* You #ould thin+ that h #ould " r tir d and %la'in( (ol& thrti$ s a # +0 "ut in &a!t h #or+s a to 7 ?o" li+ $ost o& us* N arl' allo& his shar s # r r stri!t d &or sal durin( th shar 2s $ t ori! ris and&all0 so h #as una"l to r alis th +ind o& !a%ital (ains that $i(ht ha)allo# d hi$ to r tir ri!h*

Th onl' )id n! that r $ains o& his tin( # alth is a 7 $illionho$ in th 4oston su"ur"s that h "ou(ht &or !ash* H $a+ s nou(hno# to $aintain th ho$ and %a' th ta. s on it0 "ut h !ould nota1ord to "u' it toda' i& it # r on th $ar+ t* Th l sson h r is that th&antasti! %ro-ts that !an " $ad in th shar $ar+ t ar ?ust a lot o&on s and ro s on a !o$%ut r2s l d( r sh t i& # do not s% nd th $*So$ trad rs )id ntl' thin+ that is #hat th (a$ is all a"out,a$assin( lots o& on s and ro s to + % s!or * 4ut thos #ho thin+ this#a' ar a%t to " !o$ "or d ui!+l' i& th l !troni! %ro-ts do not + %%ilin( u% at an ) r:in!r asin( rat * /& 'ou ar tradin( %ro-ta"l'0 !onsid rr #ardin( 'ours l& no# and th n #ith so$ thin( that 'ou !an trul'

n?o'0 #h th r it " a "o. o& Cu"an !i(ars or a &antasti! holida' #ith'our s%ous in Mauritius0 or a &an!' n # ho$ nt rtain$ nt s'st $ &or

http://www.psgonline.co.za/invest/buy-shares.php

http://www.psgonline.co.za/invest/buy-shares.php



'our ho$ * /t #ill h l% to r $ind 'ou that all thos trad s 'ou s# at d"ull ts o) r # r #orth th an.i t'*

LOSSESL t us sa' 'ou ar do#n t n thousand Rand* You $a' thin+0 Oh (osh /

?ust #ant to ( t that $on ' "a!+* You do not #ant to nd th da' do#nt n thousand Rand0 so 'ou ar not !o$in( to th $ar+ t to #in an'$or *

Your attitud shi&ts and 'ou ar no# !o$in( at it not to los * Pr tt' soon'ou nd u% do#n R78 888 and 'ou thin+0 Oh $'0 (osh0 that !ould ha)" n a tri% to 5a$ai!a* All that ti$ 'ou ha) ?ust " n di((in(* 4ut th-rst thin( 'ou ha) to do to ( t out o& a hol is to sto% di((in( And th

" st #a' to sto% di((in( is to thro# th sho) l do#n* You ?ust ha) tosa'0 / a$ don &or th da' and / #ill !o$ "a!+ to$orro# #h n it is a"rand n # da'* So $an' % o%l ta+ a r all' s$all situation0 #h r th 'ar onl' do#n a thousand or so0 and th ' turn it into a loss o& t nthousand tr'in( to ( t that on thousand Rand "a!+*So$ su!! ss&ul trad rs #ill us a sto%%in( %oint o& & # thousand Randloss* /& th ' ar do#n that $u!h th n th ' ar don * Th ' ?ust !annotsto$a!h losin( that $u!h or th ' #ill start doin( stu%id stu1* Th ' ( ta#a' &ro$ th $ar+ t* Th ' (o runnin( or th ' #or+ in th (ard n*

4 !aus i& th ' ar sittin( th r #at!hin( th $ar+ t0 th ' ar still (oin(to " in)ol) d and th ' $i(ht sa'0 Oh0 #o#0 that is a % r& !t trad /ha) to ta+ that* 4ut th ' +no# that th ir $ind is distort d at that%oint* /t is %ro"a"l' not a % r& !t trad * /t do s not ta+ th $ ) r' lon(to ( t o) r it* On! th ' ar a#a' &ro$ th $ar+ t0 th ' ( t o) r it%r tt' ui!+l'0 "ut i& th ' + % sta'in( th r th n th situation ?ust ( ts#ors 0 and #ors 0 and #ors *

HOW DO YO3 TALK TRAD/NGI/& 'ou ar a %art or &ull:ti$ trad r0 'ou $a' ha) n?o' d th att ntionthis #ild and #ooll' o!!u%ation "rin(s at so!ial (ath rin(s and ) nts*Man' % o%l ar int r st d in shar tradin(0 and -nd 'ou int r stin( as asu!! ss&ul trad r* At -rst0 th att ntion $a' " n?o'a"l , "ut a n d to$aintain this r %utation $a' i$%a!t 'our tradin( attitud and $ind:s t0and thus0 'our "otto$ lin * Th " st strat (' # !an us to a)oid l ttin(our r %utation in u n! our % r&or$an! 0 s% !iall' #h n ndurin( adra#do#n % riod0 is to + % our !on) rsation lo#:+ ' a"out our tradin(



!ar rs* Wh'I Th $or 'ou %r s nt 'ours l& so!iall' as a su!! ss&ultrad r0 th $or %s'!holo(i!al 1ort 'ou #ill s% nd d & ndin( thisr %utation* S ) ral r s ar!h studi s ha) do!u$ nt d that on o& th"i(( st o"sta!l s to sound d !ision:$a+in( is th n d to sa) &a! in

so!ial situations* P o%l ar so r lu!tant to &a! th ad) rs so!ial!ons u n! s o& ha)in( $ad a %oor d !ision that th ' sta' on a losin(!ours o& a!tion0 rath r than ad$it th ' # r #ron(* For .a$%l 0 so$trad rs ar r lu!tant to s ll o1 los rs in ord r to a)oid th %ossi"l so!ial!riti!is$ that a!+no#l d(in( a &ailur $a' "rin(*Su%%os that 'ou ha) told 'our &ri nds a"out a lar( tradin( %osition0and th n .t # +0 it tan+ d0 hard and &ast* Most &ol+s !annot #ait &orth n .t o%%ortunit' to as+ 'ou > ) n thou(h th ' %ro"a"l' +no# thans# r@ ho# 'our hot sto!+ is doin(* /& 'ou sold it0 at l ast 'ou ha)th sola! o& $ana(in( th trad %ro% rl'*** ) n thou(h 'ou $usttol rat a )oll ' o& s$u( 'ou:thou(ht:it:#ould:(o:u%0 "ut:it !rash d:inst ad !o$$ nts* On th o!!asions #h n 'ou i(nor d 'our %rot !ti)sto% loss0 ho# ) r0 and h ld onto th "ad trad 0 th 4o'0 'ou:r all':ARE:du$" loo+s >and % rha%s !o$$ nts@ !an .a! r"at th%s'!holo(i!al d )astation 'ou ha) "' no#0 sur l'0 in i!t d on 'ours l&*And # all +no# th n (ati) i$%a!t a n (ati) attitud !an ha) on ourtradin(* As anoth r .a$%l 0 ho# $an' ti$ s has th $ar+ t (a%% d

u%0 th n !ho%% d throu(h th r st o& th da'0 handin( 'ou $or loss sthan #insI /n )ita"l'0 thos ar th da's #h n # ll:$ anin( &ri nds !allon th %hon * You $ust ha) $ad a &ortun toda' th ' (ush* Notr all'0 'ou $u$"l #ith a sin+in( h art0 r $ $" rin( th &rustratin(tradin( n)iron$ nt* A&t r 'ou han( u% th %hon 0 th su"s u nt& lin(s !an l ad 'ou to " li ) that 'ou $ust ha) " n a do% thatda', sur l' ) r' trad r in th #orld .! %t 'ou (ra"" d hu( (ains* /nso!ial n)iron$ nts0 on! 'ou announ! and id nti&' 'ours l& as atrad r0 'ou #ill & l a n d to d & nd 'our r %utation* Tradin( is hard

nou(h0 #h' introdu! additional so!ial and %s'!holo(i!al %r ssur s that#ill ad) rs l' in u n! 'our tradin( r sultsI K % th s% !i-!s o& 'ourtradin( !ar r to 'ours l&* Th r is no sound r ason to dis!uss ths% !i-!s o& 'our !ar r so!iall'* /t is o&t n don ?ust to "uild u% 'our (o0and n?o' th att ntion o& oth rs* You #ill %a' a %ri! &or this short:t r$(rati-!ation in th lon( run* A)oid s% !i-! o"s r)ations or tradin(!hoi! s* That #a'0 'ou #ill a)oid $"arrassin( u stions and !o$$ ntsthat #ill int r& r #ith 'our tradin(*



DE ELOP YO3R SK/LL SET : TAK/NG A LOSSW ar all %roud o& th s+ills that # d ) lo% as trad rs* W #or+ on

. !ution s+ills #ith nthusias$0 %ra!tisin( s% d and %r !ision* W %our

o) r t !hni!al !harts &or hours0 stud' t !hni!al indi!ators and os!illatorsand %ossi"l' ) n alt r standard d &aults to s ho# it i$%a!ts thsi(nals th ' (i) * So$ o& us ha%%il' #or+ on !o$%l . tradin( s'st $s0la"our # ll into th ) nin( hours !al!ulatin( !o$%li!at d &or$ulas0 th ns% nd $or ti$ "a!+ t stin( th $* Oth rs !o$" throu(h r a$s o&&unda$ ntal r s ar!h to su%%ort our t !hni!al d !isions* F # o& us0thou(h0 s% nd ualit' ti$ d ) lo%in( our s+ills at ta+in( loss s*Wh'I 4 !aus loss s r uir us to ad$it that # ar #ron(* And #naturall' asso!iat " in( #ron( #ith %ain* 4ut it is a h alth' and

%ro-ta"l !on! %t to r !onsid r our loss s in an ntir l' n # li(ht* Whati& # d !lar d a di1 r nt truth to ours l) sI Th $or hi(hl' s+ill d /" !o$ at ta+in( loss s at a%%ro%riat ti$ s and a!!ordin( to $' %lan0th $or %ro-ta"l trad r / #ill " !o$ * /n Th Dis!i%lin d Trad r0 Mar+Dou(las su(( sts0 E. !ut 'our losin( trad s i$$ diat l' u%on% r! %tion that th ' .ist* Wh n loss s ar %r d -n d and . !ut d#ithout h sitation0 th r is nothin( to !onsid r0 # i(h0 or ?ud( and!ons u ntl' nothin( to t $%t 'ours l& #ith* Th r #ill " no thr at o&allo#in( 'ours l& th %ossi"ilit' o& ulti$at disast r*

To sh d a n # li(ht on loss s0 tr' r :!ir!uitin( 'our "rain and d ) lo%loss:ta+in( into a s+ill0 inst ad o& an unha%%' and %ain&ul ) nt* First0a!! %t th &a!t that loss s ar th nor$ rath r than th .! %tion in thtradin( (a$ * You should .% !t to los * O#n that r alit' #hi!h #ill h l%ta+ th & ar out o& it* S !ond0 $a+ sur to d -n 'our loss s >ris+@" &or 'ou nt r an' trad * D -n 'our %ossi"l loss0 or ris+0 in!o$%arison to 'our %ossi"l r #ard0 or %ro-t* Th %ro% r ratios o& th st#o ar #hat (i) 'ou th statisti!al d( * No# 'ou ar in !ontrol o& 'our

trad 0 not th oth r #a' around Third0 %ra!ti! .itin( 'our losin(trad s #ith %r !ision and a!!ura!'* Finall'0 !on-r$0 r alis andint rnalis that #ithout a dou"t that 'our !ontroll d loss s do not r !ton 'ou0 or 'our % rsonal #orth* Th ' ar a !o$%art$ ntalis d!o$%on nt o& 'our "usin ss*

TRAD/NG CAP/TAL : S/ E MATTERSHo# $u!h !a%ital do s on n d to start tradin(I E) r' % rson #ho isn # to tradin( as+s this u stion* /t is o&t n th -rst u stion that %o%s



u% &ro$ %ros% !ti) tradin( !li nts* 4ut is it th ri(ht u stion to as+I Th ans# r $a' not " as o")ious at it s $s* i # d &ro$ a!on) ntional stand%oint0 on $i(ht thin+ that all 'ou n d is th$ini$u$ a$ount r uir d to o% n a tradin( a!!ount "' 'our "ro+ ra(

-r$* Th r (ulators s t $ini$u$s that )ar' a!!ordin( to #h th r on#ill " tradin( shar s0 CFD2s0 o%tions0 &utur s !ontra!ts or % rha%s a!o$"ination o& th s ) hi!l s* /t is i$%ortant to r alis 0 ho# ) r0 that$ r l' $ tin( th tradin( a!!ount:si $ini$u$ do s not n ! ssaril'%ut on in (ood st ad to " (in a tradin( !ar r* A $or i$%ortant

u stion should " as+ d u% &ront; Ho# $u!h $on ' do / n d0 not in$' tradin( a!!ount0 "ut in $' "an+ a!!ountIO& !ours 0 this is ) r' di1 r nt &ro$ as+in( ho# $u!h on n ds to$ r l' start tradin(0 and ans# rin( th u stion $a' r uir a d (ro& % rsonal r !tion that (o s $u!h d % r than !al!ulatin( ho# $u!hto %ut in a tradin( a!!ount* /n &a!t0 i& tradin( CFD2s0 it is th or ti!all'%ossi"l to $a+ R6 888 to R=788 or $or in %ro-ts % r da' #ith ?ustR68 888 in a $ar(in a!!ount* 4ut do s this $ an that so$ on #ho !an$ t th $ini$u$ r uir $ nt is in .! ll nt sha% to trad I Notn ! ssaril'* Su%%os a no)i! trad r has R68 888 to o% n a $ar(ina!!ount0 "ut not a ! nt $or to %ut into it i& h or sh should los it all"' tradin( %oorl'I 3nd r su!h !ir!u$stan! s0 th loss o& su!h a su$0

hardl' i$%ossi"l 0 ) n &or so$ on $%lo'in( !ons r)ati) tradin(strat (i s0 !ould nd that % rson2s tradin( !ar r* Could on .% !t totrad # ll und r su!h a thr atI Pro"a"l' not0 sin! !on-d n! is !ru!ialto an'on #ho #ould s + su!! ss at tradin(0 and & # thin(s und r$ina trad r2s !on-d n! so thorou(hl' as a na((in( & ar o& losin( on 2ssta+ * /t is li+ tradin( #ith a (un to on 2s h ad0 and it $ ta%hori!all'd s!ri" s th trad r #ho is "ar l' a"l to !o) r $onthl' hous hold and"usin ss .% ns s #hil honin( his or h r s+ills* /t is a %ro"l $ that hastri%% d u% $an' a " (inn r0 and it $a+ s su!! ss &ar $or diJ!ult to

a!hi ) #h n st ad' %ro-ts ar n d d ?ust to %a' on 2s "ills* /t is &ar" tt r &or th n # trad r to " -nan!iall' s !ur &ro$ th start0 s !ur

nou(h so that an ntir ' ar s% nt #ithout %ro-t on th l arnin( !ur)#ould not i$%a!t on 2s li& st'l or thr at n on 2s -nan!ial s !urit'*So # should not &ool ours l) s into " li )in( that $ r l' $ tin($ini$u$ tradin( a!!ount:si r uir $ nts #ill suJ! * /n &a!t0 i& it !osts'ou R=88 888 % r ' ar on a) ra( to $ t all hous hold .% ns s0 th n'ou should ha) at l ast R=88 888 in li uid sa)in(s to s 'ou throu(h'our -rst ' ar o& tradin(* This0 o& !ours 0 is in addition to th su$ 'ou#ill us to &und 'our tradin( a!!ount* Ha)in( a suJ!i nt su$ in th "an+



to $ t a ' ar2s #orth o& li)in( .% ns s #ill %ro)id a !ushion a(ainstad) rsit'0 as # ll as a %s'!holo(i!al "ul#ar+ a(ainst th u%s and do#nsthat ar a nor$al %art o& ) r' trad r2s l arnin( .% ri n! *

TOP:DOWN ERS3S 4OTTOM:3P STOCK P/CK/NGSTRATEG/ESWhat is th o%ti$al #a' to %i!+ a shar I Should 'ou us a to% do#na%%roa!h0 #h r on )aluat s th "road r !ono$i! tr nd " &or!onsid rin( an industr' >i* * $inin(0 -nan!ial and industrial@0 th n ths !tors and th n0 a s% !i-! shar I Or should 'ou us a "otto$ u%a%%roa!h0 #h r on starts "' loo+in( at indi)idual shar !hara!t risti!s0

" &or loo+in( at th s !tor0 th industr' and th n th "road r !ono$i!%i!tur I 4oth strat (i s ha) th ir ad)anta( s0 "ut th on 'ou d !idto us d % nds on 'our o"? !ti) s* /n a to% do#n a%%roa!h0 th (oal is to%i!+ a shar that #ill out% r&or$ ( n ral !ono$i! tr nds* 4' loo+in( atth ( n ral !ono$i! tr nd -rst0 on !an th n d t r$in #hi!h s% !i-!industri s or s !tors #ill out% r&or$ th ( n ral tr nd* Shar s that arattra!ti) #ithin that industr' s !tor ar th n %ur!has d* Fro$ at !hni!al anal'sis %oint o& )i #0 a to% do#n in) stor -rst anal's s thtr nd o& th ntir $ar+ t0 &ollo# d "' th tr nd o& th s !tor0 and -nall'th tr nd o& s% !i-! shar s* A "otto$ u% a%%roa!h is $or li+ a tr asurhunt* On loo+s at th shar s -rst0 &ollo# d "' th s !tor and th n th$ar+ t* A &unda$ ntal anal'st $i(ht " (in th hunt "' si&tin( throu(hhundr ds o& shar s0 s!r nin( &or !andidat s #ith a lo# PQE0 hi(hdi)id nd rat or .a$in do ns o& oth r a)aila"l uantitati) studi s*A t !hni!al anal'st #ill ith r s!an an uall' lar( nu$" r o& !harts &or"r a+outs0 "r a+do#ns0 %ull"a!+s0 sna%"a!+ ralli s0 unusual )olu$a!ti)it'0 or hundr ds o& oth r t !hni!al indi!ator studi s*

So #hi!h a%%roa!h is " tt r0 anal'sin( th $a!ro %i!tur -rst or ta+in( aloo+ at th indi)idual shar s -rstI Th ans# r is not !l ar:!ut* /t d % ndson 'our o"? !ti) s and anti!i%at d ti$ in a trad * For short:t r$tradin(0 ho# ) r0 a "otto$ u% a%%roa!h is %r & rr d* Si$ilarl'0 'oushould also loo+ at indi)idual !o$%on nt or ind . shar s o& a s !tor" &or loo+in( &or !on-r$ation "' a stron( ind . %ri! * Wh n tradin( inth short t r$0 it is !ru!ial to r $ $" r that ti$in( is i$%ortant* Andsin! ! rtain !o$%on nt or ind . shar s t nd to l ad an' %arti!ularind .0 th "otto$ u% a%%roa!h #ill h l% 'ou id nti&' th " st

o%%ortuniti s*



THE GOLDEN MEAN : REAL TRAD/NGPHENOMENON OR 53ST W/SHF3L TH/NK/NGI/& 'ou ha) s% nt an' ti$ around tradin(0 'ou ha) %ro"a"l' run into

th Gold n M an* You $a' ha) s n it r %r s nt d as Fi"ona!!i lin s ona %ri! !hart* Th Fi"ona!!i s u n! is a strin( o& nu$" rs in #hi!h t#o!ons !uti) nu$" rs ar add d to( th r to %rodu! th third0 &or

.a$%l 0 60 60 =0 0 70 <0 6 0 =60 0 770 and so on* So$ trad rs usratios d ri) d &ro$ th Fi"ona!!i nu$" r s ri s to d -n + ' su%%ortand r sistan! l ) ls0 o&t n #ith th " li & that su!h sti$at s ar $or

natural " !aus th ' ar "as d on th Fi"ona!!i s u n! * Fi"ona!!i!lai$ d that !onsist nt %att rns !ould " &ound in #hat a%% ar d to "rando$ nu$" rs* Su"s u nt &ollo# rs o& Fi"ona!!i .t nd d his th or'to th tradin( o& &utur s and shar s as th ' att $%t d to -nd %att rns inrando$ %ri! a!ti)it'* 4ut ar th r natural and %ristin %att rns in ths $in(l' rando$ $o) $ nts o& %ri! s0 or is it ?ust #ish&ul thin+in(IOn #a' o& !al!ulatin( th Gold n M an Ratio is to add t#o rando$nu$" rs to( th r* That r sult is th n add d to th su$* A&t r i(htr ) r" rations0 on !an di)id th &or$ r nu$" r into th latt r and -nda d -na"l %att rn0 #hi!h is r %r s nt d $ath $ati!all' as 8*B6< or itsr !i%ro!al0 6*B6<* This Gold n M an is thou(ht to r sid in th $ost

" auti&ul ar!hit !tur 0 $usi! and art* /t is !o$$onl' &ound in natur inth stru!tur o& $an' o& th $ost " auti&ul o# rs0 ani$als0 ands ash lls* Gr + %hiloso%h rs and $ath $ati!ians sa# th Gold n M anas si(ni-!ant " !aus it illustrat d "alan! in natur 0 th arts0 and ) nth hu$an "od'* /t #as th %ito$ o& "alan! 0 th % r& !t sha% U th$ost %l asin( )ision* /n th natural #orld0 it is a$a in( ho# !onsist nt%att rns a"ound0 "ut #h n it !o$ s to hu$an " ha)iour0 so!ials!i ntists ha) lon( +no#n that su!h !onsist n!i s ar rar and al$ostnon: .ist nt* And #hat is tradin(I /t is hu$an " ha)iour* /t is not a

natural %h no$ non0 "ut $ad u% "' hu$ans* /t is not % r& !t* /t is not%ristin * /t is in disarra' and un%r di!ta"l * To " a su!! ss&ul trad r0 on$ust a!! %t th un! rtaint' o& hu$an " ha)iour and n(a( in thdauntin( tas+ o& -ndin( !onsist n!' #h r th r is littl *N ) rth l ss0 $an' trad rs -nd id as0 su!h as th Fi"ona!!i nu$" rs u n! 0 &as!inatin(0 al$ost $'sti!al* 4ut not all trad rs a%%r !iat th" aut' o& th Fi"ona!!i nu$" r s u n! * /nd d0 th ditor o& a %o%ulartradin( $a(a in on! not d that th r $i(ht " nothin( $'sti!al a"outth s u n! * /t $a' s $ to #or+ $ r l' "' !oin!id n! >th $ar+ t isli+ l' to !orr !t so$ #h r " t# n on :third and t#o:thirds o& th



%r )ious tr nd0 #hi!h is si$ilar to th !o$$onl' us d Fi"ona!!i ratioso& * <= and *B6<*@ Wh r 'ou stand on su!h issu s $a' r ) al a lota"out 'our tradin( % rsonalit'* Man' trad rs ar dra#n to thsu% rstitious as% !ts o& tradin(* Th ' do not ha) !on-d n! in

th $s l) s0 so th ' start s ar!hin( &or $ thods "as d on th la#s o&natur that !an (i) th $ a solid0 ' t &als 0 s ns o& r assuran! * Th 's + out uni) rsal and ( n ral rul s0 all in an att $%t to s + out! rtaint' and th s !urit' it %ro)id s* Con! %ts0 su!h as th Fi"ona!!inu$" r s u n! 0 do ?ust that* Th ' o1 r %ro$is *On has th lu.ur' o& not " li )in( in on s l&0 "ut in th (r at ro$ni%ot nt la#s o& natur * /t is li+ " li )in( in lu!+0 &at 0 or d stin'* On!an !hos to li) on 2s li& %assi) l' " li )in( in .t rnal &or! s0 #aitin(&or th %ro) r"ial stars to lin u% in on 2s &a)our* 4ut th $ost su!! ss&ul$ $" rs o& so!i t' do not ha) ti$ to #ait &or &at or to d % nd onlu!+* And i& 'ou #ant to " a %ro-ta"l trad r0 or sta' that #a'0 it #ould" #is to a"andon an' &or$s o& su% rstition* Th sur st #a' to su!! ssis to "uild u% 'our tradin( s+ills* 4uild th $ u% to th %oint that 'ou!annot #ait &or so:!all d lu!+ to $o) a(ainst 'ou so that 'ou !and $onstrat 'our a!tual &ortitud * With solid tradin( s+ills0 and th ro!+solid !on-d n! it #ill (i) 'ou0 'ou #ill -nd that 'ou !an a!! %t thun! rtaint' in)ol) d in tradin( th $ar+ t0 and d % nd on 'ou0 'our

s+ills0 and nothin( ls *

CONTROLL/NG FEAR 4Y CONTROLL/NG R/SK F ar %rot !ts us* /& 'ou tou!h a hot sto) and ( t "urn d0 'ou l arn &ro$'our $ista+ 0 and 'ou n ) r do it a(ain* 4ut so$ % o%l n ) r l arn0

s% !iall' #h n it !o$ s to tradin(* Th ' $a+ a$at ur $ista+ s o) rand o) r a(ain0 li+ tradin( #ith $on ' that th ' ?ust !annot a1ord tolos 0 or a"andonin( ris+ li$its and $a+in( lar( 0 ris+' trad s to $a+"a!+ $on ' th ' ha) lost on a & # "ad trad s* Th & arl ss trad r $a'

nd u% as a losin( trad r unl ss %ro% r ris+ $ana( $ nt is us d* Th r ar %s'!holo(i!al ad)anta( s to ris+ $ana( $ nt; Wh n 'ou+no# 'ou !an handl th #orst:!as s! nario0 'ou #ill & l $or at as 0and 'ou #ill trad $or !r ati) l'* On o& th $ost %o%ular #a's to li$itris+ is to r stri!t th a$ount o& tradin( !a%ital 'ou ris+ on an' (i) ntrad to 69:=9* Ho# do 'ou %r !is l' li$it ris+I First0 'ou should ha) a# ll:d -n d tradin( %lan in #hi!h 'ou sti$at th %ot ntial %ro-t 'ou

!ould $a+ 0 and at th sa$ ti$ 0 +no# ho# $u!h 'ou !ould %ot ntiall'



los * Th ran( at #hi!h a sto!+ trad s o) r a s% !i-! ti$ % riod0 &or.a$%l 0 !an (i) 'ou a (ood id a as to ho# $u!h 'ou $i(ht los *

Prot !ti) sto% loss s ar an 1 !ti) tool &or $ana(in( ris+* For.a$%l 0 su%%os 'our tradin( a!!ount is R688 888 and 'ou d !id to

$a+ t#o $a?or trad s, 'ou $a' %lan to ris+ onl' R60888 on a!h tradin ord r to li$it 'our ris+ to a"out =9* On on o& th s trad s0 'oud !id to %ur!has a sto!+ that o&t n trad s " t# n R78 and R76* Your%lan is to "u' at R78 and s ll at R76* Ho# $an' shar s !an 'ou "u' andstill !ontrol ris+I /& 'ou %ur!has d 6888 shar s at R780 th %ri! !ould &allR6 and 'ou #ould los R6888* 4' %la!in( a %rot !ti) sto% at R 0 usin(auto$ati! s ttin(s on 'our tradin( %lat&or$0 'ou #ill li$it 'our ris+ to69*Mor .% ri n! d trad rs $a' %r & r $ ntal sto%s in #hi!h th '$anuall' !los a trad #h n it r a!h s th R .it %oint* Thdisad)anta( o& $ ntal sto%s is that unl ss on has un&ailin( dis!i%lin 0a $ ntal sto% $a' not " . !ut d at th ri(ht ti$ * /& not . !ut d0 th%ri! $a' &all R 0 &or .a$%l 0 and #h n th loss is !o$%ound d toR 08880 it $a' " diJ!ult to -(ht th t $%tation to d n' th loss andl a) it on %a% r* 4ut loss s l &t on %a% r $a' $ount &urth r o) r ti$ 0i& th tr nd has !o$%l t l' turn d around0 and !r at ) n $or%s'!holo(i!al r (r t and d nial* Auto$ati! s ttin(s on 'our tradin(

%lat&or$ ha) ad)anta( s*Anoth r a%%roa!h to s ttin( %rot !ti) sto%s is to "as th $ on th% r! nta( o& th %ri! o& th sto!+ that is trad d* 3sin( our .a$%l o&a sto!+ that s lls &or R78, su%%os a trad r $a' d !id to ris+ no $orthan 69* On % r! nt o& R78 is 78 ! nts0 so th %rot !ti) sto% #ould "%la! d at R *78* A third #a' to a%%roa!h %rot !ti) sto% loss s is to usti$ * Su%%os that 'ou d !id d to $a+ a s#in( trad in #hi!h 'ouanti!i%at that th %ri! o& a sto!+ #ill in!r as &ro$ R78 to R76 in t#o# +s* /& th %ri! do s not $o) to th R76 tar( t in t#o # +s0 th

trad is !los d*Wh n s ttin( %rot !ti) sto% loss s0 it is )ital to n ) r doan'thin( ar"itraril'* Al#a's $a+ a d tail d tradin( %lan* Stud' th$ar+ t a!tion o& th ) hi!l 'ou %lan to trad * /& 'ou ha) so$und rstandin( o& th &a!tors that $a+ th %ri! $o) 0 alon( #ith thran( at #hi!h a sto!+ $o) s0 'ou #ill " a"l to $a+ an in&or$ dd !ision as to th %ro-t or loss 'ou $a' n!ount r and " a"l to ta+th n ! ssar' %r !autions to %rot !t 'ours l&* Pr %arin( &or a trad$a+ s all th di1 r n! * /& 'ou $a+ in&or$ d d !isions0 'ou #ill +no#d % do#n that 'ou ha) ta+ n %r !autions to %rot !t 'our tradin(!a%ital* /& 'ou +no# that 'ou !an sur)i) th #orst:!as s! nario0 'ou



#ill & l sa& r and $or r la. d* Th r is no r ason to allo# & ar to%aral's 'ou* As lon( as 'ou a)oid tou!hin( a hot sto) 0 'ou #ill not ( t"urn d*

YO3R F/RST LOSS /S YO3R 4EST LOSS/n th "oo+ Th Dis!i%lin d Trad r0 Mar+ Dou(las su(( sts0 E. !ut'our losin( trad s i$$ diat l' u%on % r! %tion that th ' .ist* Wh nloss s ar %r d -n d and . !ut d #ithout h sitation0 th r is nothin(to !onsid r0 # i(h0 or ?ud( and !ons u ntl' nothin( to t $%t 'ours l&#ith* Th r #ill " no thr at o& allo#in( 'ours l& th %ossi"ilit' o&ulti$at disast r*

/n th "oo+ Th Mind o& a Trad r0 Patri!+ Ar"or0 &or$ r !hair$an o& thChi!a(o 4oard o& Trad dis!uss s th ada( 0 Your -rst loss is 'our " stloss* Man' trad rs do not &ollo# this ad)i! 0 ho# ) r* Wh'I A lot o& it is$ asur d "' %ain : %ain to th %o!+ t"oo+0 %ain to th #all t0 %ain toth %s'!h * Althou(h trad rs $a' int ll !tuall' +no# that th ' shouldta+ a loss0 th ir (o #ill not l t th $ ta+ a loss* As Mr* Ar"or not s0 it> (o@ %la's #ith 'ou0 " !aus # all li+ to thin+ that # ar s$art andli+ to ha) !on-d n! in ours l) s* This n d to %rot !t our (o do snot s r) us # ll in th lon( run0 thou(h* As Mr* Ar"or o"s r) d in his

$an' ' ars on th oor0 Th $ar+ t is al#a's ri(ht* No on is s$art rthan th $ar+ t* / ha) s n % o%l !o$ do#n to th oor #ith /Vs o&6780 PhDs0 M4As &ro$ Har)ard0 and not do # ll " !aus th ' thin+ th 'ar s$art r than th $ar+ t* /n th nd0 'ou ha) to $o) #ith th$ar+ t rath r than tr' to outs$art it* On! 'ou a!! %t that th $ar+ thas an u%% r hand0 'ou !an ta+ loss s $or asil'0 and th n $o) onto th n .t #innin( trad *Ho# !an 'ou l arn to ta+ loss sI

First0 a!! %t th &a!t that loss s ar th nor$ rath r than th.! %tion #h n tradin( th $ar+ ts* /t $a' s $ li+ a do#n r0 "ut

r alisti!all'0 'ou should .% !t to los #h n tradin( th $ar+ ts* >/t r all'

is not all that "ad0 thou(h* Winnin( "as "all %la' rs stri+ out $or ti$ s

than th ' hit ho$ runs0 and that is ho# it #or+s #ith tradin(* You ha) to

ta+ a !han! 0 and a!! %t din(s to 'our (o* 4ut in th nd0 'ou #in

nou(h to $a+ it all #orth it*@ On! 'ou a!! %t this &a!t0 'ou #ill trad

$or !ar &r *



S !ond0 $a+ sur to d -n 'our ris+ " &or 'ou nt r a trad *

D -n 'our %ossi"l loss0 or ris+0 in !o$%arison to 'our %ossi"l r #ard0

or %ro-t* On! 'ou +no# that th %ot ntial r #ard out# i(hs th ris+0 'ou

#ill & l $or at as *

Third0 %ra!ti! .itin( 'our losin( trad s non!halantl'* You $a' tr'

to $a+ s$all r trad s &or a #hil so that th loss #ill not hurt as $u!h*

On! 'ou " !o$ $or a!!usto$ d to s$all loss s0 'ou !an ta+ "i(( r

loss s $or asil'*

Finall'0 do not ta+ loss s % rsonall'* Loss s ha) nothin( to do #ith

'ou* Do not l t 'our n t #orth d -n 'our inn r #orth* Do not %ut 'our

(o on th lin #ith 'our $on '* /& 'ou !an a!! %t loss s and li) "' th

ada( 0 'our -rst loss is 'our " st loss0 'ou #ill st adil' "uild u% th

!a%ital in 'our tradin( a!!ount0 and " on o& th & # trad rs #ho nd u%

as a #inn r*

SEEK/NG O3T PROTECT/ON FROM LOSS You $ust ris+ $on ' to $a+ $on '* /t is sad0 "ut tru * You !annot%ossi"l' $a+ %ro-ts in th $ar+ ts unl ss 'ou %ut u% th $on '* Man'% o%l hat ta+in( ris+s0 s% !iall' #ith th ir $on '*Ris+ is a %art o& ) r'da' li& 0 thou(h* W ta+ ris+s all th ti$ 0 ) n#h n # !o$%l t th $ost $undan tas+s0 su!h as dri)in( our !hildr nto s!hool or 'in( ho$ to )isit our &a$il' &or th Christ$as holida's* W

) n ta+ ris+s #hil sta'in( ho$ * W !an sli% in th "athtu"0 &or

.a$%l * W !annot s!a% ris+ "ut # !an ta+ r asona"l %r !autionsto %rot !t our int r sts* Wh n 'ou dri) do#n th str t0 &or .a$%l 0 itis %rud nt to # ar s at" lts and !ar &ull' dri) at a sa& s% d* Wh n it!o$ s to tradin(0 it is also )ital to ha) %ro% r %rot !tion* Ad) rs &or! s$a' (o a(ainst 'our tradin( %lan0 and unl ss 'ou %rot !t 'ours l&0 'ourun th ris+ o& ( ttin( hurt0 and #ith tradin(0 that o&t n $ anssu"stantial hits to 'our tradin( a!!ount "alan! *

You $ust " a"l to handl ris+ in ord r to trad %ro-ta"l'* Wh n # ara&raid to ta+ a ris+0 # shrin+ "a!+0 %aral's d and d & at d* So #hat!an # doI On an' (i) n trad 0 # !an all )iat so$ o& th & ar "'



ris+in( a s$all % r! nta( o& our tradin( a!!ount on a sin(l trad 0 andta+in( it on trad at a ti$ inst ad o& &o!usin( i$$ diat l' on thon rous (oal o& a!hi )in( a s% !i-! r turn a!ross th ntir s ri s o&trad s* /& 'ou !an a)oid ) r thin+in( o& th lon(:t r$ (oal o& hu(

su!! ss0 'ou !ould %ro"a"l' trad &or ) r #ithout h sitation* Th r ar oth r o")ious #a's to & l %rot !t d and sa& * For .a$%l 0'ou !an us a %rot !ti) sto% loss to $a+ sur that 'ou r stri!t tha$ount 'ou !an los on an' (i) n trad * 4' loo+in( at th %ast% r&or$an! o& a shar 0 'ou !an sti$at an id al sto% loss %oint that%rot !ts 'ou0 "ut do s not allo# 'ou to ( t sto%% d out too arl'*P rha%s th $ost i$%ortant &or$ o& %rot !tion0 thou(h0 !o$ s in th&or$ o& a # ll:d ) lo% d tradin( %lan* /& 'ou +no# s% !i-!all' #h n to

nt r and #h n to .it0 'ou !an . !ut th %lan ) n #hil & lin(a&raid o& loss s* You !an asil' &ollo# 'our %lan0 &r in( u% 'our $ind to&o!us on 'our i$$ diat .% ri n! rath r than th lon(:t r$!ons u n! s o& a tradin( loss* /t is also i$%ortant to anti!i%at ad) rs

) nts as %art o& 'our tradin( %lan* Ma+ sur that arnin( r %orts or arat hi+ announ! $ nt is not (oin( to ruin 'our tradin( %lan* Car &uland %r !is %lannin( is th " st #a' to %rot !t 'our tradin( a!!ount"alan! *

5ust li+ n(a(in( in a dan( rous s%ort0 'ou & l " tt r #h n 'ou +no#

that 'ou ha) so$ &or$ o& %rot !tion* Athl t s %rot !t th $s l) s #ithh l$ ts0 and air"a(s and s at" lts %rot !t us as # dri) in rush hourtraJ!* Su!! ss&ul tradin( also r uir s ad uat %rot !tion* Prot !tionnot onl' nsur s that 'ou !an sur)i) to trad anoth r da'0 "ut it alsoallo#s 'ou to & l r la. d #hil 'ou . !ut and $onitor a trad * So%rot !t 'ours l&* /& an'thin( !an (o #ron(0 it usuall' do s* You do notha) to #orr'0 ho# ) r* /& 'ou ta+ %r !autions0 'ou #ill sur)i) thinh r nt s t"a!+s in tradin(0 and nd u% #innin( in th lon( run*

S3R / E NOW0 PROSPER LATER/& 'ou ar li+ $ost no)i! trad rs0 'ou #ant to #in "i( ri(ht no#* You!annot #ait* Man' % o%l ar $oti)at d "' (r d* Th ' dr a$ a"out(r at # alth and ho# # alth !an sol) all th ir %ro"l $s* Man' no)i!trad rs ar dra#n to th a!tion* Mo)i s li+ Wall Str t and Tradin(Pla! s $a+ tradin( loo+ .!itin( and s .'* 3n&ortunat l'0 $osts ason d trad rs #ill t ll 'ou that #innin( in th $ar+ ts is a $att r o&

t diousl' loo+in( &or hi(h %ro"a"ilit'0 lo# ris+ s tu%s and tradin( th $*



All that a u st &or (r d and .!it $ nt #ill do is distra!t 'ou &ro$l arnin( ho# to $ast r th $ar+ ts*/t ta+ s ti$ to $ast r th $ar+ ts* Man' s ason d %ro& ssional trad rsha) "lo#n out th ir tradin( a!!ounts $or than on! * /n th "oo+

Mar+ t Wi ards0 "' 5a!+ S!h#a( r &or .a$%l 0 Mi!ha l Mar!usd s!ri" d ho# h #i% d out his a!!ount "alan! s ) ral ti$ s " &orl arnin( ho# to $a+ $illions tradin( th $ar+ ts* Althou(h h &a! d anun"ro+ n strin( o& loss s0 h did not (i) u%* As h said to th author

5a!+ S!h#a( r0 / #ould so$ ti$ s thin+ that $a'" / ou(ht to sto%tradin( " !aus it #as ) r' %ain&ul to + % losin(* /n 2Fiddl r on thRoo&02 th r is a s! n #h r th l ad loo+s u% and tal+s to God* / #ouldloo+ u% and sa'0 2A$ / r all' that stu%idI2 And / s $ d to h ar a !l arans# r sa'in(0 2No0 'ou ar not stu%id* You ?ust ha) to + % at it*2 So /did*

Tradin( ta+ s ' ars to l arn* You ha) to ta+ th ti$ to l arn tod ) lo% an intuiti) & l &or th $ar+ ts* You !annot ?ust r ad "oo+s andta+ !lass s and thin+ 'ou !an l arn it all* Th s a!ti)iti s $a' "

ss ntial %r r uisit s0 "ut r al #orld .% ri n! !ounts too* As4randon0 a s ason d %ro& ssional on! %ut it0 4oo+s $ainl' t a!h "asi!t !hni u s and (i) 'ou "asi! ad)i! ; th tr nd is 'our &ri nd0 "u'dou"l "a!+s0 "u' "r a+outs0 dra# tr nd lin s* 4ut "oo+s do not tal+

a"out $otional .% ri n! s* You ar a uni u % rson #ith 'our o#nhistor' #ith th $ar+ ts and 'our o#n r sour! s* You n d to l arn #hatit & ls li+ to los 0 or #hat it & ls li+ to hold a %osition o) rni(ht* Youha) to l arn to (au( 'our tol ran! &or ris+* Th r is no on ri(ht #a'to trad * You ha) to l arn #hat 'ou %r & r and d ) lo% an a%%roa!h totradin( that suits 'our tal nts* All this ta+ s ti$ and %ati n! *Man' no)i! trad rs $a+ th $ista+ 0 ho# ) r0 o& tr'in( to rush thin(s*

Th ' $a+ "i( trad s rath r than $ana( ris+* 4i( trad s ar .!itin(and satis&' th n d to $a+ a lot o& $on ' as soon as %ossi"l * This

a%%roa!h usuall' &ails0 thou(h* No)i! trad rs #ho $a+ "i( trad s ?ustnd u% #i%in( out th ir a!!ount "alan! " &or honin( th ir s+ills*

/& 'ou ar a no)i! trad r l arnin( to $ast r th $ar+ ts0 it is )ital to$ana( ris+ so that 'ou !an sur)i) * 5ust li+ $an' s ason d trad rs0'ou #ill ha) $an' ' ars o& %ros% rous tradin(* What 'ou $ust do ri(htno#0 ho# ) r0 is to sur)i) th l arnin( !ur) * /n addition to $ana(in(ris+s0 it is us &ul to s% !ialis on l arnin( th $o) $ nts o& a & #s% !i-! shar s* L arn to ( t a & l &or su%%ort and r sistan! l ) ls &orthat shar * You should +no# (ood "u' %oints and s ll %oints* With%ra!ti! 0 'ou #ill " an .% rt on a & # shar s0 and soon 'our intuiti)



s+ills !an " a%%li d to a )ari t' o& shar s* 4' startin( out slo# and"uildin( 'our s+ills o) r ti$ 0 'ou !an sur)i) th l arnin( !ur) and ndu% a s ason d0 %ros% rous trad r*

C3TT/NG EMOT/ONAL STR/NGS THAT 4/NDLOSSES TO EGO/& 'ou ar li+ $ost trad rs0 'ou ha) #or+ d lon( and hard to "uild u%tradin( !a%ital* Puttin( it on th lin 0 ) n s$all a$ounts at a ti$ 0 !an" diJ!ult* 4ut loss s ar !o$$on%la! in tradin(0 and to $aintain 'oursanit'0 it is n ! ssar' to ta+ loss s in strid * Man' trad rs "lo# loss sout o& %ro%ortion* /n th "oo+0 Th Mind o& th Mar+ ts0 F* 5* Chu not s0

Th ) r' !o$$on %h no$ non o& % rsonali in( %ro-ts and loss s o&t n%ro) s disastrous* Th lin+in( o& (o or s l&:#orth #ith %ro-ta"l andun%ro-ta"l d !isions trans&or$s #hat should " a dis%assionat-nan!ial d !ision into an $otional d !ision*/t $a' " diJ!ult0 "ut th %ro& ssional trad r l arns ho# to ta+ loss snon!halantl'* Dan d s!ri" s ho# h r a!t d to a "i( loss %ro& ssionall'and o"? !ti) l'; On ti$ / lost )irtuall' ) r'thin( in on or t#o da's0and a (ood &ri nd o& $in !a$ o) r* / thin+ / lost &our or -) hundr dthousand Rand or so$ thin( li+ that* / told hi$0 2/t is onl' !ash* /t is not$' li& that / lost* / !an ( t it "a!+* /t is not th nd o& th #orld*2 Wh n /los 0 / a$ not losin( $' hous 0 $' !ar0 $' !r dit !ards0 or $' &ri nds* /$ad a $ista+ * / a$ an(r' that / $ad a $ista+ 0 "ut th !ash hasnothin( to do #ith it* /t is i$%ortant &or trad rs to %ut loss s in% rs% !ti) */t is also i$%ortant to a)oid l )atin( th i$%ortan! o& $on '* /n

R $inis! n! s o& a Sto!+ O% rator0 Larr' Li)in(ston o"s r) d that#h n h s t his li& st'l standards too hi(h0 h o&t n $ount d "i( loss s

shortl' th r a&t r* S ason d trad rs at th Chi!a(o M r!antil E.!han(>CME@ ha) o"s r) d that #h n a trad r "u's a ash' n # s%orts !ar0 hor sh usuall' nds u% !ra!+in( und r th strain o& ha)in( to $aintain ali& st'l o& lu.ur'* Dan su(( sts ta+in( a &ru(al a%%roa!h to -nan!ial%oss ssions; / di)or! d $'s l& &ro$ $at rial it $s a (ood =8 ' ars a(o*4' th ti$ / #as =70 / had no d sir s &or $at rial it $s* / ha) l arn do) r th ' ars that $on ' is onl' a su"stitut &or lo) * Mat rial thin(s0li+ !ars and ho$ s0 ar ?ust su"stitut s as # ll* /t ?ust " !a$ !l ar r#ith s l&: .%loration* /n ( ttin( !l ar r0 / di)or! d $'s l& &ro$ th

$otions o& th shar s0 th $otions asso!iat d #ith $on ' and (r d*Mon ' ?ust do s not "u' 'ou ha%%in ss*



Wh n 'ou $a+ a trad 0 %ut 'our $on ' on th lin 0 not 'our (o* /t ishard to -(ht a(ainst th natural hu$an r a!tion to & l % rsonall' hurt#h n 'ou los $on '0 "ut %ro& ssional trad rs do it0 and so !an 'ou* On#a' to ta+ loss s in strid is to trad onl' #ith $on ' 'ou !an a1ord to

los 0 not $on ' 'ou n d &or "asi! li)in( .% ns s* /& th loss trul'$ ans littl to 'ou0 'ou #ill +no# 'ou !an sur)i) th loss0 and this+no#l d( #ill allo# 'ou to sta' !al$* 4ut i& 'ou ?ust !annot a1ord tolos 0 'ou #ill ha) trou"l !on)in!in( 'ours l& that it do s not $att r* /tdo s0 and 'ou +no# it* Loss s should not hurt* /& 'ou !ontrol 'our ris+0'ou !an handl loss s $or asil'* /& 'ou $ini$is th a$ount 'ou ris+on an' sin(l trad 0 it #ould not hurt 'our tradin( a!!ount "alan! ) r'$u!h* Finall'0 do not ta+ loss s % rsonall'* i # a trad as a "usin sstransa!tion* /t is not a"out 'ou or 'our s l&:#orth* You ha) s l&:#orth no$att r ho# $u!h 'ou #in or los in th $ar+ ts* /& 'ou r $ $" r this&a!t0 'ou #ill " a"l to ta+ loss s in strid *

A4ANDON/NG R/SK L/M/TSWinnin( trad rs $ana( ris+* Ris+ $ana( $ nt is )ital &or th ir sur)i)al*4ut -nan!ial ris+ $ana( $ nt do s not !o$ naturall' &or $ost % o%l *4 ha)ioural !ono$ists ha) sho#n that % o%l !an " .tr $ l'

undis!i%lin d #h n it !o$ s to ris+ !ontrol* A&t r a "i( #in0 th ' !an" !o$ o) r!on-d nt to th %oint o& .u" rantl' ta+in( unn ! ssar'ris+s* And a&t r a "i( loss0 th ' ha) a stron( d sir to r !ou% th irloss s* Gainin( a#ar n ss o& th s hu$an d !ision $a+in( "ias s !anh l% 'ou n utralis th $0 and %r ) nt th $ &ro$ shatt rin( 'our tradin(dis!i%lin */n a !lassi! stud'0 " ha)ioural !ono$ists Ri!hard Thal r and Eri!

5ohnson as+ d %arti!i%ants to ta+ t#o (a$"l s0 on a&t r th oth r0usin( r al $on '* /n th -rst o& th t#o (a$"l s0 %arti!i%ants ith r #onor lost $on '* Th %oint o& th stud' #as to s #hat % o%l #ould do inth s !ond (a$"l * Would th ' nthusiasti!all' ta+ anoth r ris+ or#ould th ' shrin+ a#a'0 a) rs to ris+IWh n %arti!i%ants #on on th -rst (a$"l 0 th ' # r #illin( to ta+ a!han! on a s !ond (a$"l * 4ut %arti!i%ants #ho did not #in on th -rst(a$"l r &us d to $a+ a s !ond " t* 4 ha)ioural !ono$ists !all this-ndin( th hous $on ' 1 !t* Wh n % o%l o"tain a #ind&all0 th ' donot $ind losin( it* Th ' do not s th $on ' th ' #on as th ir o#n and

ar #illin( to ris+ it &r l'* /t is li+ (a$"lin( #ith th !asino2s0 or hous 2s0$on '* Th ' thin+0 /t is not $' $on '* /t do s not $att r i& / "lo# it all*



Wh n %arti!i%ants lost $on ' on th -rst (a$"l 0 in !ontrast0 th ' # rnot #illin( to $a+ a " t on th s !ond (a$"l * /t is li+ #h n a sna+ ora s%id r "it s 'ou* On! 'ou ha) " n "itt n0 'ou ar a&raid to ( t"itt n a(ain* You do not ta+ a !han! in th &utur * You ar too a&raid*

P o%l do not #ant to ta+ a ris+ #h n th ' ha) a !l ar i$a( in th ir$ind that th ' ar (oin( to ( t hurt* 4 ha)ioural !ono$ists !all this%h no$ non th sna+ "it 1 !t*Wh n loss s ar s% !iall' (r at0 ho# ) r0 % o%l asil' o) r!o$ thsna+ "it 1 !t* Th r is a stron( and % r)asi) t nd n!' to r !ou%loss s* /n th "r a+: ) n 1 !t0 % o%l ar #illin( to (o dou"l :or:nothin( to $a+ "a!+ #hat th ' ha) lost* Th ' #ill ta+ s% !iall' ris+'(a$"l s on th !han! that th ' !an "r a+ ) n ui!+l'* 4ut ris+i r " tso&t n $ an ) n "i(( r loss s in th lon( run*Mana(in( ris+ is ss ntial &or lon( t r$ sur)i)al* 4ut trad rs ar hu$an0and hu$ans !an " ha) irrationall'* O) r!on-d nt onlin in) stors #hoha) $ad "i( #ins0 &or .a$%l 0 t nd to o) r:trad and ta+ ris+i rtrad s than ar %rud nt* And #h n no)i! trad rs ha) a lon( s ri s o&los rs0 $an' ar t $%t d to $a+ "i(( r0 ris+i r trad s in th ho% o&r !ou%in( #hat th ' ha) lost* /nst ad o& &allin( %r ' to th s "ias s0 itis )ital to st ad&astl' $ana( ris+ no $att r #hat* Do not l t !o$$ond !ision $a+in( "ias s !o$% l 'ou to a"andon 'our ris+ $ana( $ nt

%lan* Winnin( trad rs $ana( ris+* /& 'ou !an !ontrol 'our i$%uls tor a!t irrationall' and $otionall'0 'ou !an asil' $ana( ris+0 anda!hi ) ndurin( -nan!ial su!! ss*

S3NK COSTS /N E ERYDAY L/FE AND /N TRAD/NGHa) 'ou ) r %ut 'our ti$ and $on ' into a %ro? !t and r ! i) dnothin( &or it* P rha%s it is a !lassi! !ar 'ou ha) " n $ anin( tor stor that has " n sittin( in th (ara( &or 68 ' ars0 or 'our(rand%ar nts2 anti u so&a that 'ou %ut in a stora( unit 'ou !an -nd a#a' to -t it into th d !or o& 'our li)in( roo$* /t has s nti$ ntal )aluand 'ou ?ust do not #ant to %art #ith it* /t is #orth th R=78 a $onth to+ % it in stora( 0 ri(htI Ma'" 'ou !an (i) it to 'our !hildr n0 "ut atR=78 a $onth &or 68 ' arsI That is R 8 888 /s th s nti$ ntal )alu#orth itI That is u% to 'ou0 "ut &or so$ % o%l 0 R 8 888 is a lot to %a'&or s nti$ ntal )alu * W !an ( t o) rl' atta!h d to our %oss ssions toth %oint that # do #hat ) r # !an to + % th $0 rath r than ?ust l t

(o o& th $* This attitud !an trans& r to th tradin( r al$ as # ll* P o%l!an " !o$ so o) rl' atta!h d to a shar that th ' a!t $otionall'0 as i&



th shar has s nti$ ntal )alu * 4ut shar s ar not &or o#nin( and+ %in(* Shar s ar &or tradin(0 and $a+in( $on '*Sun+ !ost 1 !ts ar %o# r&ul* Our ti$ and n r(' ar %r !ious0 and#h n # d )ot )alua"l r sour! s to an a!ti)it'0 in ) r'da' li& or a

trad 0 # #ant to " li ) # did not s uand r th & # ass ts # ha)a)aila"l * Wh n # $a+ a trad 0 # #ant to " li ) that # $ad a(ood d !ision* A na((in( )oi! in th "a!+ o& our $inds #his% rs0 Wh'did 'ou ris+ r sour! s i& 'ou did not thin+ that 'ou !ould $a+ a d ! nt%ro-tI Your -rst in!lination is to shout0 / did not* 4ut 'ou $a' ha) 0and it is all ri(ht i& 'ou did* Wh n 'ou $a+ a trad that is not #or+in(out0 do not " a&raid to ad$it it* Do not tr' to ?usti&' 'our d !ision*E) r'on $a+ s $ista+ s0 and #innin( trad rs $a+ a lot o& th $ onth ir #a' to ndurin( %ro-ta"ilit'* Do not %la! $or $ anin( on a tradthan n ! ssar'* /t is ?ust a "usin ss d al0 and #h n 'ou do $a+ a %oortradin( d !ision0 do not " a&raid to ad$it it* Do not " riddl d #ith (uiltor r (r t* Man' ti$ s0 # a)oid ad$ittin( that # $ad a %oor d !ision" !aus # ar a&raid o& th $otional !ons u n! s* W s ours l) sas !o$% t nt and astut 0 and #h n # $a+ a $ista+ 0 it !an $a+ us& l in %t and o"tus * /t is asi r to tr' and i(nor it0 and sa) &a! * For

.a$%l 0 'ou !an l a) a losin( trad on %a% r and ho% that $ar+ t!onditions #ill i$%ro) and 'ou #ill r !ou% 'our loss s* /t is usuall'

" tt r to ?ust &a! th loss0 thou(h* 5ust a!! %t 'our li$itations0 and$o) on* /t !an " diJ!ult0 "ut 'ou !an $a+ it asi r "' r $ $" rin(th $otto0 Do not & l "ad a"out & lin( "ad* So 'ou $ad a $ista+ *Ma+ li(ht o& it and $o) on* Rath r than r a!t $otionall' #ith (uilt oran.i t'0 it is " tt r to sta' o"? !ti) * Wh n 'ou o"? !ti) l' loo+ at atrad 0 'ou #ill " l ss a&raid to stud' th !ons u n! s in $ ti!ulousd tail* You #ill $onitor 'our trad s0 loo+ hon stl' at ho# # ll 'ou ardoin( and n utralis th sun+ !ost 1 !t* Th sun+ !ost 1 !t is%o# r&ul* /t is th d $is o& $an' trad rs #ho &ruitl ssl' tr' to i(nor

#hat th ' did #ron(0 and in doin( so r $ain stu!+ and un as'* 4ut i& 'ou-nd th !oura( to o"? !ti) l' a!+no#l d( #h n 'ou # r #ron(0 'ou!an ta+ s t"a!+s in strid 0 and $o) on to th trad s that $a+ 'ou a#innin( trad r*

DO NOT LET A SET4ACK GET YO3 DOWN/& 'ou #ant to " !o$ a #innin( trad r 0 'ou $ust " #illin( to &a! loss

a&t r loss #ithout l ttin( it ( t 'ou do#n* 3%on &a!in( a loss0 our -rstin!lination is to & l disa%%oint d0 "ut ho# 'ou r a!t $otionall' is

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$ r l' a $att r o& ho# 'ou loo+ at $att rs* /& 'ou (o in #ithunr alisti!all' hi(h ho% s0 'ou #ill & l d )astat d #h n 'ou n!ount r as t"a!+* /& 'ou .% !t a s t"a!+ h r and th r 0 ho# ) r0 'ou #ill & l at

as and r ad' to "oun! "a!+ ui!+l' #h n 'ou ar +no!+ d do#n*

4a" Ruth stru!+ out o) r 6888 ti$ s on his #a' to s ttin( th ho$ runr !ord* A to%:not!h sal s% rson $a' $a+ a sal on onl' on out o& t n!old !alls* And a #innin( trad r !an !o$ out ah ad ) n i& th $a?orit'o& trad s . !ut d ar los rs* /t is dauntin( to thin+ a"out it0 "ut 'ou$a' s $an' $or &ailur s than su!! ss s on 'our #a' to " !o$in( as ason d0 $ast r trad r*S ason d trad rs +no# ho# to ta+ loss s and s t"a!+s in strid * Th 'do not $ull o) r %ast d & ats0 or tradin( loss s* Th ' s a s t"a!+ asan o%%ortunit' to hon th ir s+ills0 (ro#0 and i$%ro) * Th ' .a$in#hat th ' did #ron(0 l arn &ro$ th ir $ista+ s0 and )i # a t $%orar's t"a!+ as a laun!h %ad &ro$ #hi!h to a!hi ) hi(h r &utur% r&or$an! * With %ro% r ris+ $ana( $ nt0 'ou !an #in as & # as &ourtrad s out o& a do n and still !o$ out ah ad* Rath r than ( ttin("o(( d do#n #ith s l&:dou"t0 r (r t0 and d & at0 #innin( trad rs us a

loss as a $oti)ator &or !han( and i$%ro) $ nt*Ho# !an 'ou a1ord to ta+ loss a&t r loss and " ha%%' a"out itI /t is not

as'* O")iousl'0 i& 'ou ar losin( "i( o) r and o) r a(ain0 'ou #ill "lo#

'our tradin( a!!ount out ui!+l'0 and ) r' loss #ill $a+ 'ou & l ) n$or dis!oura( d and " at n* To & l sa& and at as 0 'ou $ust " li )that 'ou !an sur)i) th l arnin( !ur) * Ris+ $ana( $ nt is )ital &or'our sur)i)al* Li$it 'our ris+ on an' sin(l trad * /n addition0 trads l !ti) l'* Onl' ta+ trad s tu%s #h r 'ou !an %ot ntiall' $a+ alar( %ro-t #ith r lati) l' littl ris+* That is still not nou(h0 ho# ) r* /&'ou do not i$%ro) 0 'ou #ill still nd u% in th r d* You $ust & l that'our s+ills ar in !onstant u. in ord r to ta+ loss s in strid *Mar+ t !onditions and 'our $ood !an i$%a!t 'our tradin( % r&or$an! *

/& 'ou trad in $ar+ t !onditions #h r 'ou ha) trou"l $a+in( a %ro-t0'ou #ill & l str ss d out and 'ou #ill li+ l' !ho+ und r th %r ssur * /tis " tt r to trad und r !onditions #h r 'ou ar !o$&orta"l $ost o&th ti$ * Your -rst %riorit' should " on $a+in( nou(h #innin( trad sto %ro-t o) rall* E) n th n0 'ou #ill still s $or losin( trad s than#inn rs* 4ut on! 'ou & l s !ur that 'ou !an $a+ %ro-ts0 'ou #ill "a"l to .%lor n # t rritor' #ith littl & ar* On! 'ou +no# that 'ouha) a "asi! s t o& s+ills0 'ou #ill " a"l to ta+ loss s in strid * So#h n 'ou & l " at n0 &o!us on th "i( %i!tur * As lon( as 'ou $ana(ris+ and !ontinu to i$%ro) 'our s+ills0 'ou #ill ) ntuall' $ast r th



$ar+ ts* /n th !ont .t o& th "i( %i!tur 0 th loss s h r and th r ar ?ust %art o& th l arnin( .% ri n! * As lon( as 'ou a!hi ) %ro-ta"ilit'in th nd0 o!!asional loss s ar nothin( to #orr' a"out*

SOC/ALLY RESPONS/4LE /N EST/NG >SR/@/n A%ril =8870 Ti$ $a(a in %u"lish d th ir list o& th #orld2s 688$ost in u ntial % o%l * On th list is A$' Do$ini* Sh runs th 6*7"illion Do$ini E uit' &und0 on o& th old st $utual &unds "as d onso!ial r s%onsi"ilit'* /n th !utthroat #orld o& in) stin(0 sh o1 rs athou(ht %ro)o+in(0 alt rnati) % rs% !ti) * H r ar a & # .! r%ts &ro$an int r)i # #ith h r*

What is a so!ial r s%onsi"l !o$%an'IMs* Do$ini " li ) s that $an' !or%orations o% rat und r thassu$%tion that %ro-ts ar th -rst and onl' %riorit', $an' !or%oratl ad rs " li ) that th ' should $a+ $on ' at an' !ost0 "ut adh rin(to this standard has so!ial !ons u n! s* Ms* Do$ini ar(u s that th!o$%an'2s -du!iar' r s%onsi"ilit' #ill !onsist o& $ tin( that standard0and th ' #ill & l ?usti- d to do that "' an' $ ans* Th ' $a' & l it is$oral to "ri" so$ "od' at th a!!ountin( standards "oard to !r atn # a!!ountin( standards that $a' $a+ th !o$%an' loo+ $or

%ro-ta"l * 3nd r that standard0 it #ill " th ir $oral o"li(ation to !h at0"ri" 0 and st al* Th ' #ill & l it is $oral to do #hat ) r th ' !an to$a+ $on '0 r (ardl ss o& th so!ial !osts* What rol !an in) stors%la'IMs* Do$ini %oint d out that0 Th #a' 'ou in) st "uilds th #orld 'our!hildr n and (rand!hildr n #ill (ro# u% in* You $ust as+0 2What +ind o&#orld do 'ou #ant th $ to (ro# u% inI2 Th r ar t#o issu s to !onsid r;uni) rsal hu$an di(nit' and !olo(i!al sustaina"ilit'* On should "!o$&orta"l as a hu$an " in(, 'ou #ould li+ to a)oid n din( an ar$ d(uard ) r' ti$ 'ou l &t ho$ or r uirin( 'our !hildr n to %la' " hinda "ar" d #ir & n! * Th r is also a h alth as% !t as &ar as th %lan t(o s* /t is %r tt' si$%l and strai(ht&or#ard0 "ut ri(ht no#0 th !or%orat!ultur #or+s a(ainst th s issu s " !aus th standard is to $a+ a%ro-t at all !osts0 and hu$an di(nit' !osts $on '* En)iron$ ntalr s%onsi"ilit' !osts $on '*/n th int r)i #0 Ms* Do$ini %oint d out that th r ar ad)anta( s toin) stin( in so!iall' r s%onsi"l !o$%ani s0 in addition to th &a!t that

th ' addr ss issu s o& hu$an di(nit' and !olo(i!al sustaina"ilit'* /t ishard r to "oth turn a %ro-t and r $ain so!iall' r s%onsi"l * /nno)ati)



. !uti) s usuall' run !o$%ani s that addr ss so!ial and !olo(i!alissu s* Th ' ar on th "all and %roa!ti) * And " !aus so!iall'r s%onsi"l !o$%ani s ar $or inno)ati) 0 th ' t nd to " $or%ro-ta"l o) r th lon( run*

A!!ordin( to Ms* Do$ini0 it is %ossi"l &or !o$%ani s to " "oth%ro-ta"l and so!iall' r s%onsi"l * As Ms* Do$ini %oints out0 On #antsto " $ind&ul o& th #orld 'ou #ant 'our !hildr n to (ro# u% in* On#ants to " $ind&ul #h n in) stin(* Th in) stor has ulti$at %o# r*

Th in) stor is o) r # i(ht d in %o# r* H or sh has $or %o# r thanoth r %la' rs at th ta"l and n ds to ta+ r s%onsi"ilit' &or his or h ra!tions*

TAK/NG THE PL3NGE Th s ason d trad r do s not trad all da'0 ) r' da'* Mar+ t !onditions!han( and it is #is to stand asid until 'our tradin( $ thods $at!h$ar+ t !onditions* At oth r ti$ s 'ou $a' " & lin( o10 and it $a' "" tt r to #at!h th $ar+ t than trad it* Tradin( is a $att r o& $o)in(&ro$ stud'in( and o"s r)in( to a!ti) l' %arti!i%atin(* For th no)i!trad r or th trad r in a s ) r slu$%0 ?u$%in( in !an " s!ar'* Tradin(out!o$ s ar not a ! rtaint'* /& # +n # # !ould ?ust %ut on a trad and

ta+ ho$ a sur %ro-t0 # !ould not #ait to %ut on trad a&t r trad *>/nd d0 that is #h' $ost a$at ur0 onlin in) stors o) rtrad * Th ' arunr alisti!all' o%ti$isti! and %ut on a trad ) n i& it has a %oor !han!o& $a+in( a %ro-t*@G ttin( a!ti) l' in)ol) d in tradin( r uir s r solut i$%l $ ntation o& a!o$"ination o& !o(niti) and " ha)ioural strat (i s* On th !o(niti)sid 0 'ou $ust .a$in 'our thin+in( strat (i s and !han( th $* /t is

?ust li+ ?u$%in( into a !old s#i$$in( %ool* Wh' do 'ou not ?ust ta+ th%lun( I /t is " !aus 'ou thin+ 'ou #ill ( t hurt* /& 'ou ar h sitanta"out %uttin( on trad s0 it is " !aus 'ou ar a&raid* You ar a&raid tolos 0 to " #ron(0 and to &a! 'our li$itations* /& 'ou ar$ 'ours l& #iththin+in( strat (i s0 ho# ) r0 'ou #ill " a"l to $ust r nou(h(u$%tion to ta+ th %lun( * /t is ti$ to &ollo# th sa( ad)i! o&s ason d trad rs; E.% !t to los * Winnin( trad rs ta+ loss s in stridand that is #hat 'ou ar (oin( to ha) to do* Loo+ at 'our assu$%tionsand !han( th int rnal dialo(u 'ou ha) #hil ( ttin( r ad' to trad *

You $a' thin+0 /& / los 0 it #ill $ an / !annot trad * 4ut #hat 'ou should

thin+ is0 A loss is ?ust & d"a!+* /t do s not $ an an'thin( a"out $ * /!an still l arn ho# to trad * / a$ not (oin( to s t $' .% !tations



unr alisti!all' hi(h* / a$ ?ust (oin( to s #hat ha%% ns0 and no $att r#hat ha%% ns0 / a$ not (oin( to dra# th !on!lusion that / #ill n ) r" !o$ a s ason d trad r* E) n i& / "lo# out $' tradin( a!!ount0 it #ill" a l arnin( .% ri n! * /t #ill " $on ' / s% nt on tuition to l arn ho#

to $ast r th (a$ * On! 'ou ar ar$ d #ith th s !o(niti)strat (i s0 'ou !an &a! %ot ntial loss s $or asil'* So$ trad rs ha)

) n &ound it h l%&ul to #rit do#n an u%" at %assa( 0 li+ th ona"o) 0 and r ad it o) r and o) r " &or a trad and a&t r a loss tor stor a !oura( ous0 o%ti$isti! outloo+*On th " ha)ioural sid o& thin(s0 it is )ital &or sur)i)al to !ontrol ris+*Ma+ s$all trad s and #ait &or hi(h %ro"a"ilit' s tu%s* Th r is no su!hthin( as a (uarant d trad * 3nl ss 'ou $ana( ris+0 'ou #ill sur l'"lo# out > s% !iall' i& 'ou ar a no)i! trad r@0 so 'ou $ust ris+r lati) l' littl on a sin(l trad or s t o& trad s* That said0 'ou $ust "it'our li% and ta+ th %lun( * /& 'ou ar a&raid to ta+ th %lun( 0 'ou$i(ht !onsid r asin( into it* Start out $a+in( .tr $ l' s$all %ra!ti!trad s* Th trad s !an " so s$all that th "ro+ ra( !o$$issions onth $ ar $or than an' %ossi"l %ro-t 'ou !an $a+ * /t is #orth th!osts* /t #ill ( t 'our & t # t* /t #ill ta+ th $'st r' out o& th #hol%ro! ss* P o%l ha) a natural in!lination to " li ) that a & ar d ordr ad d ) nt is $or hurt&ul than it a!tuall' is* W t nd to .a(( rat

th %ot ntial har$* On! # ?u$% into th a!ti)it'0 ho# ) r0 # s thatit is not so "ad* Our #orst & ars ar usuall' n ) r r alis d* On! 'ou$a+ a s ri s o& s$all trad s su!! ss&ull'0 'ou !an in!r as 'our%osition si until 'ou r a!h a %osition si !onsist nt #ith 'our tradin(a!!ount si * Th tri!+ is to ta+ (radual st %s* /t is li+ "uildin( u%%h'si!al sta$ina* Do not tr' to do too $u!h all at on! * Wor+ u% to it*

Ta+in( th %lun( into tradin( a!ti) l' !an " s!ar'0 "ut # o&t n thin+ itis asi r to a)oid & ars than &a! th $ h ad on* /& 'ou .a$in thassu$%tions und rl'in( 'our & ar o& loss s0 and th n $a+ a!tual trad s

to "r a+ out o& 'our i$%os d %s'!holo(i!al sh ll0 'ou !an $ast r th$ar+ ts and " !o$ a s ason d0 #innin( trad r*

ACCEPT/NG AND RED3C/NG R/SK Tradin( is ris+'* D % ndin( on 'our % rsonalit'0 'ou $a' " .tr $ l'intol rant o& ris+* Most % o%l a)oid ris+s at all !osts* Hu$ans had to$a+ %rud nt d !isions in ord r to sur)i) and )ol) * E) n thou(h

trad rs +no# th ' $ust ris+ $on ' to $a+ $on '0 th naturalin!lination to a)oid ris+ is %o# r&ul* Ho# $u!h ris+ ar 'ou #illin( to



ta+ I Th r is no ri(ht ans# r* /t d % nds on 'ou* /& 'ou ar a ris+s + r0 'ou $a' not $ind ris+* You $a' a!tuall' $"ra! ris+ andun! rtaint'* 4ut i& 'ou2r li+ $ost % o%l 0 th $or ris+ 'ou !an

li$inat 0 th " tt r*

You !ould a)oid ris+ ntir l' "' %uttin( 'our $on ' in a sa)in(s a!!ount0"ut su!h an in) st$ nt #ould "rin( r lati) l' littl %ro-t* Th lur o&short:t r$ tradin( is that 'ou ha) th %ot ntial to $a+ hu( %ro-ts*

Th do#nsid is th un! rtaint' and ris+ 'ou $ust a!! %t* Th a$ount o& ris+ 'ou ta+ is still u% to 'ou0 ho# ) r* For .a$%l 0 it is $or ris+' totrad $ar+ ts #ith .! ss )olatilit' or ) r' littl li uidit'0 so a)oidin(th $ #ill h l% 'ou sta' !al$ i& 'ou ha) lo# ris+ tol ran! * Traditionala%%roa!h s to ris+ !ontrol !an also h l%0 su!h as ha)in( a di) rs%ort&olio* /& 'ou trad )arious shar s that ha) littl !orr lation0 'ou ha)so$ insuran! that a dro% in on shar $a' not auto$ati!all' !oin!id#ith a dro% in oth r shar s in 'our %ort&olio* 4ut no $att r ho# $u!h'ou tr'0 'ou $ust d !id ho# $u!h ris+ 'ou ar #illin( to ta+ *P rha%s th $ost unn r)in( as% !t o& ris+ in th $ar+ ts is th &a!t thatit is i$%ossi"l to +no# all %ossi"l ris+s u% &ront* Who +no#s #hat #illha%% nI Th r ar $an' ) nts that 'ou ?ust !annot !ontrol* For

.a$%l 0 a $ dia anal'st $a' tal+ u% or tal+ do#n a shar that 'ou artradin( and it $a' th#art 'our tradin( %lan* An un .% !t d national

) nt $a' in u n! th $ar+ ts in #a's that 'ou had not anti!i%at d*And #h n it !o$ s to s llin( o1 a %osition0 'ou $a' not ( t th %ri!'ou #ant at th $o$ nt 'ou ar tr'in( to s ll* And th n th r ar $or"asi! %ro"l $s that ha$% r 'our %lans0 li+ a !o$%ut r !rash or a DSLlin (oin( do#n* /n th nd0 'ou $ust %s'!holo(i!all' a!! %t th &a!tthat th r ar so$ ris+s that 'ou !annot !ontrol*

You $a' not " a"l to !o$%l t l' a)oid all %ossi"l ris+s0 "ut 'ou !anta+ st %s to r du! ris+* For .a$%l 0 "' s ttin( a sto% loss 'ou !and t r$in ho# $u!h loss 'ou ar #illin( to ta+ * /t $a' ta+ so$ s+ill

to +no# #h r to %la! th sto% loss so 'ou #ould not ( t %r $atur l'sto%% d out0 "ut in %rin!i%l 'ou !an r du! 'our ris+ "' d !idin( a

%oint #h r a loss is (r at nou(h that 'ou #ould rath r !los th tradthan !ontinu * You !an also r du! ris+ "' a)oidin( thinl' trad d shar s*E) n th $ost "rilliant tradin( %lan #ill &ail i& th r ar not nou(h"u' rs and s ll rs to $a+ it #or+* R du!in( ris+ !an " a $att r o&!hoosin( th ri(ht shar * And i& 'ou ar s% !iall' ris+ a) rs 0 'ou !anstand asid until th r is a stron( "ull $ar+ t* 4ut #hat ) r 'ou d !idto do0 al#a's r $ $" r that 'ou ha) !hoi! s* You !an d !id ho#$u!h ris+ 'ou #ant to ta+ * 4' $at!hin( th a$ount o& ris+ 'ou ta+



#ith 'our tol ran! &or ris+0 'ou !an trad $or !al$l'0 and that usuall'$ ans 'ou #ill trad $or %ro-ta"l'*

C3T YO3R LOSSESWh n it !o$ s to tradin(0 it is not #h th r 'ou #in or los 0 "ut ho#$u!h 'ou $a+ on a #innin( trad !o$%ar d to ho# $u!h 'ou los on alosin( trad * /& 'ou !an !ut 'our loss s and $o) on0 'ou #ill sur)i) * /t$a+ s s ns 0 lo(i!all'0 "ut %s'!holo(i!all'0 $an' trad rs ha) trou"l!uttin( th ir loss s* W hat to los and # #ill do an'thin( to a)oidlosin(0 ) n it $ ans d n'in( that # ha) lost* So$ ar ha%%' to + %loss s on %a% r to a)oid th in )ita"l & lin(s o& r (r t that o&t n !o$

#ith a losin( trad * P o%l ar ris+ a) rs * Th ' o&t n s ll o1 #inn rs too%r $atur l' and + % los rs too lon(0 ho%in( that so$ ho# thin(s #illturn around* 4ut it hardl' ) r #or+s* Man' % o%l #ould " #is to&ollo# th ad)i! o& Paul Tudor 5on s0 / s% nd $' da' tr'in( to $a+$'s l& as ha%%' and r la. d as / !an " * /& / ha) %ositions (oin( a(ainst$ 0 / ( t ri(ht out* /& th ' ar (oin( &or $ 0 / + % th $* /t is )ital &or'our lon(:t r$ sur)i)al that 'ou ad$it that 'ou ha) $ad a losin(trad 0 and !los it out*Hu$ans ha) a natural in!lination to a)oid loss s0 "ut s ason d0

%ro-ta"l trad rs !ut th ir loss s arl'* Th ' #or+ und r th assu$%tionthat th ' #ill s $an' $or losin( trad s than #innin( trad s* Kno#in(ho# to ta+ a loss in strid is a + ' s+ill that all trad rs $ust d ) lo%* /tis o&t n asi r said than don 0 thou(h* 4 ha)ioural !ono$ists ha)outlin d $an' %s'!holo(i!al %ro! ss s that %r ) nt $ost trad rs &ro$a!! %tin( a loss and $o)in( on*First0 hu$ans ar naturall' ris+ a) rs * Th ' do not li+ ta+in( loss s*Wh n it !o$ s to sur #in th ' ta+ it i$$ diat l'* 4ut #h n it !o$ s toa sur loss0 th ' #ould rath r ta+ a !han! 0 ho% &or no loss at all0 and%ossi"l' ta+ a hu( loss0 than ?ust ta+ a s$all loss u% &ront* 4oth%ro& ssionals and a$at urs !an &all %r ' to this t nd n!'* Tradin( lor isr %l t #ith tal s o& trad rs #ho ?ust !ould not ta+ a s$all lossi$$ diat l'* Th ' hold on to loss s rath r than ad$it th ' $ad a "i($ista+ * Th loss s !ontinu to $ount and th hol ( ts d % r andd % r* Th hu$an $ind has a r $ar+a"l !a%a!it' to i(nor #hat itdo s not #ant to s * And loss s ar hard to s *S !ond0 a $a?or %s'!holo(i!al r ason &or holdin( on to a losin( trad is

th sun+ !ost 1 !t* Th $or -nan!ial and %s'!holo(i!al !osts # sin+into a trad 0 th hard r it is to ta+ th loss and $o) on* /t is li+



thin+in(0 / ha) #ait d so lon( and / ha) lost so $u!h o& $' initialsta+ that / !annot (i) u% no#* Th r is a stron( n d to ?usti&' th

1ort and .% ns 'ou ha) %ut into holdin( a losin( %osition* Th%s'!holo(i!al n d to ?usti&' th loss is so (r at that it !an " diJ!ult to

#rit it o1* Third0 so!ial %ro! ss s %r ) nt $an' trad rs &ro$ ta+in( a loss* /t is hard&or so$ trad rs to + % th ir #ins and loss s to th $s l) s* Tradin( !an" a lon l' %ro& ssion0 and it is us &ul to ?oin a n t#or+ o& &ri nds toshar .% ri n! s and ( t su%%ort* Th do#nsid 0 ho# ) r0 is that so$% o%l in th n t#or+ $a' !o$% t #ith 'ou0 ?ust #aitin( &or 'ou toha) a s t"a!+ so that th ' !an & l su% rior* You $a' loo+ &or#ard tor lishin( 'our #ins0 "ut dr ad ha)in( to ad$it 'our loss s* Th n d tosa) &a! !an %r ) nt so$ trad rs &ro$ ta+in( a loss* Th " st antidotto this %ro"l $ is to sta' hu$"l * Do not "ra( a"out 'our #ins* /& 'oua)oid ( ttin( a s# ll d h ad0 'ou #ill " a"l to ad$it 'our $ista+ s andshort!o$in(s $or asil'0 and 'ou #ould not #orr' a"out " !o$in(

$"arrass d &or losin(*Cuttin( 'our loss s is )ital &or su!! ss0 "ut it is hard to do* 4 a#ar o&th %o# r&ul %s'!holo(i!al &a!tors that %r ) nt 'ou &ro$ ta+in( a lossand $o)in( on* /t $a' " hard to do0 "ut i& 'ou #or+ und r thassu$%tions that loss s ar in )ita"l 0 and do not ta+ loss s % rsonall'0

'ou #ill " a"l to !ut 'our loss s0 $o) on0 and $a+ hu( %ro-ts*

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