3 - Keep losses small and maximise winners
This sound obvious, of course, but it’s often traders doing exactly the opposite of this that accelerates them along the path to financial ruin.
If it’s clear that the trade is going against you, get out quickly. In many cases a trade will go the wrong way at some point – it’s not always possible to pick the perfect entry point and so you need to allow room for the trade to breath as it confirms a bottom/ top or performs a natural retrace after a big move. But if it’s clear that market conditions have changed it’s best to cut your losses and move on to the next trade. Never widen your stop-loss position in the hope that things will turn around.
Conversely, when the trade is running the right way don’t panic and take your profits at the first sign of it stalling. Sometimes this makes sense when the market is clearly turning or if your initial pre-trade assessment wasn’t accurate and so you are lucky not to have lost; but generally it’s wise to keep the trade open and just keep trailing your stop-loss position in behind the trade to stay in the game as long as possible.
If you look at our trading history, you’ll notice that (as of 27th Jan 2013) our average winning trade is $37 (or 370 points) and our average losing trade is $19 (or 190 points) – this, coupled with having more winners than losers, is why we are successful gold traders.
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