Before I became a professional trader, I was a martial artist. In any kind of martial art, before you ever learn how to hit your opponent, you must learn how to prevent opponents’ attacks from killing you. This is the same in the investment world. Before you learn how to win big in the market, you must learn how to cut loss. If you want to become a professional trader that is able to earn a steady passion income, you must stick to a investment plans and a reasonable cut off point.
Investment is like gardening. If you get rid of the weed everyday, in the end, you will have a stunning garden with beautiful plants, just like the old lady in stories. Since the weed doesn’t have time to grow big roots, you don’t need a great amount of effort to pull them out.
On the other hand, if you allow the weeds time to grow by ignoring them and relaxing yourself too much, their strong surviving ability will amaze you. There will always be excuse for saving the work for tomorrow. ‘It is too sunny today. The weeds is too little and I will do it altogether later.’ Guard your heart for from it overflows the fruit of life.
Learn from this parable and clear all the small losses every day, when they are small. You do this by keeping the cut loss point. When the loss of a single transaction reaches a certain level, you give the money and leave to prevent any further losses. This significantly protects your overall profit.
Some thinks that a good investment trading is one that never loses, but it isn’t. Losses will always happen and should be counted as an operating expense. And they behave like weeds in garden. It is easy to deal with small losses but it is almost impossible to deal with when they get big, because of the serious chain reaction they give rise to.
Investors seldom tell you how they take out many small losses in their accounts. But many investors would tell you the story about one or two big losses that consumed all the money in their investment accounts.
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