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Secret 7

Money management is the key

Think about money management daily. You do not necessarily need to have a high win-to-loss ratio, but your average win must be higher than your average loss if you want to succeed. To do this, there must be (at least some) “big hits.” You have to maximize some trades. You need these big wins to offset the inevitable numerous (and hopefully small) losses that are inevitable. I've found being able to cut losses early, by even a small incremental amount per trade, say $100, can make a major difference to the bottom line. This takes decisiveness, so be decisive if the trade is not acting right. Waiting for a few more ticks is generally not a recipe for success.

One more point here: It is bad practice to cancel or extend a stop loss order. You should never do this. My experience has been that 99 times out of 100, canceling a stop is the wrong thing to do. It's okay to cancel a profit-taking order at times, but the sooner a loss is stopped, the better. When you get out of a bad position quickly and with a minimum of trauma, not only is your capital base maintained, but your judgment also improves. Without a well-defined risk point, there's no judgment. (What it's called is hope, and you should never trade on hope.)


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