I agree, where you head is at, has everything to do with what direction you go in. So, riddle me this wise bunch...
I seem to have arrived at a fork in the road, it is this: There is alot of trading literature out there, however basically it comes down to two diametrically opposed camps in regard to the following issue.
In one camp you hear the standard fare,
Step 1. Develope a robust trading idea with good entries, hopefully better exits. Now go ahead and trade it. Step 2. But, if things don't unfold properly, in other words you are experiencing drawdown, you need to start doing something which will in some way reduce or curtail your trading in the hopes that such action will "prevent" further losses. I find this type of advice frequently in trading manuals and courses.
In the other camp, the one that stresses psychology you will hear some of the following:
You can Never Know whether the next trade will be a winner a loser.
Trying to avoid losses is futile.
You must believe in the long term strength of your edge and practice it whenever you can, because you are being paid on a long series of trades not just a small sample of them.
Richard Dennis, one of the Turtle founders, issued this famous question,
referring to system trading. "You have just had your 19th losing trade in your S&P 500 System, The 20th entry signal occurs. Do you take the trade?"Of course Dennis would say you must take it, assuming you had the capacity.
I hope this post is clear. The question relates to psychology because clearly a trader should not have one foot on the gas and the other on the brake, as the two opposing viewpoints suggest. Either you're going to trade your system or you aren't, there really is no way to fudge this question. Putting artificial limits (that probably cannot be shown to have any statistical validity) such as if you have X losses in a row you must stop trading your edge creates in one's mind a mixed message, assuming that one agrees with the camp that advises that proper psychology and hence consistency is the cornerstone of profitable trading, not a magic parameter set which composes a system.
I recently asked a successful trader who daytrades, whether she had her own self imposed limit on total losses for the day, and she said rather simply, No. She did however use stops for each and every trade. And she took every valid trade entry that presented itself that she was able to take. Everything she said before that point could have come right out of Mark Douglas' Trading in The Zone. I think with so many important texts coming out recently in the field of trading psychology, many traders are actually conflicted in this area, and the funny thing is until the issue is settled in an intelligent way, the trigger finger of many traders will always be more shaky than it should be. All insights welcome, don't hold back....
