I like this rule. Simple.
Thanks @dudebro. Actually, traders I respect have told me directly this is a bad strategy. They say every position should be run according to its TA. And if an open long position is still likely to rise, it should not be closed just because of some random arithmetic concerning my account.
I have told new traders these things myself. But I just cannot withstand the psychological damage of watching a basket of trades go from +10% to -2%. So its not a TA rule, its a personal protection rule.
Maybe, if I was sitting on a huge pot of profit, I would get rid of the 10% rule. Not yet though…
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You do not give yourself enough credit, I think. Personal protection rules are important, too. We are not robots, and we need to build trading plans we can actually implement consistently. If we push ourselves too hard, psychologically, we start deviating from the plan.
My own weakness is prolonged drawdown; it’s almost physically painful. So I hunt for price compressions and trade explosive breakouts. I ruthlessly cut positions that do not move quickly into profit. Sometimes that means I get out of positions that go on to become winners, but by making rules that I can actually follow, I actually follow the rules I make.
Sun Tsu noted that it is not enough to simpy know your enemy; you must also know yourself. You seem to have a strong handle on that one.
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Yea, this has happened to me quite often, but maybe more so because of my strategy, and not sticking to the rules as I should be. And taking profit at whatever level is so much easier psychologically than watching a trade sit and eventually go the other direction.
I think this is key. Trade a system and rules that you’ll actually follow.
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Good idea! Keep up the good work!
seriously, i need this rule…
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I believe that leaving the market correctly does not only mean closing it with a predetermined profit. If you leave the transaction even after losing some money, but not exceeding the allowable amount, then this can also be considered a relatively correct exit. The main thing is that these losses do not accumulate, and their proper analysis is made.
That’s a good point. Don’t extend the loses . But I think that’s harder to do, when lots of trading education tells you to give the trade room to move. I think this is where your max risk per trade comes into play.