Being a trader, I’m always interested in articles and books on trading. I like to see how other traders do things, and every once in a while I’ll learn something new. I just finished an interesting book on Stock trading the other day. The book itself isn’t important, there are a thousand books just like it, but what I found interesting is what the author of the book tells his readers to do compared to what the author does himself.
You see the author was extolling the same trading axioms you hear all the time: the trend is your friend; don’t hold on to losing positions; don’t average into a declining market – you know the ones – but the axiom that got my attention is the oldie but goodie: Cut Your Losses Short and Let Your Profits Run. Sounds like good advice, doesn’t it?
What I found fascinating is that not only does the author not tell you how to Cut Your Losses Short and Let Your Profits Run, but that he does the exact opposite when describing his trading! You see this particular trader turned author scalps for a living. And not only is he a scalper, but he’s the most extreme type of scalper: the one that trades for a single tick! That’s hardly Letting Your Profits Run no matter what your standard of a Runner is.
Trading for tight profit targets is nothing new. In fact, I’m a big proponent of tight profit targets. I believe tight profit targets increase your probability of a successful trade and to me having a high probability trade is a crucial variable and one which I can have direct control over. But what puzzles me is why would this trader/author tell his readers the opposite? Why would he even bother saying Cut Your Losses Short and Let Your Profits Run if he doesn’t do that himself?
It got me thinking about all the trading advice that most people take for granted and how wrong that advice might truly be. All this great advice and yet people still lose money trading. Why is that? I suppose the simple answer is that the advice isn’t that great after all.
To me, trading boils down to one thing, and only one thing: Risk Control. If you’re able to manage your risk, the rest of the trade will take care of itself. It’s like Paul Tudor Jones said: if people concentrated on their risk, instead of the pie in the sky (reward) they would all be very successful traders.
And PTJ should know. He’s one of the most successful traders of our time. I wonder if he pays attention to any of the trading axioms we do? I doubt it.
Ask Erich Senft about this and any other trading questions in our Trade Room. Click HERE to Register.
TESTIMONIAL DISCLOSURE: Testimonials appearing on www.IndicatorWarehouse.com may not be representative of the experience of other clients or customers and is not a guarantee of future performance or success.
LIVE TRADE ROOM DISCLOSURE: All presentations, videos, and information are for educational purposes only and the opinions expressed are those of the presenter only. All trades presented should be considered hypothetical and should not be expected to be replicated in a live trading account.
Commodity Futures Trading Commission Futures and Options trading has substantial potential rewards, but also significant potential risk. You must be aware of the risks and be willing to accept them to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.
CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS, IN GENERAL, ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Use of any of this information is entirely at your own risk, for which Indicator Warehouse will not be liable. Neither we nor any third parties provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or suitability of the information and content found or offered in the material for any particular purpose. You acknowledge that such information and materials may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. All information exists for nothing other than entertainment and general educational purposes. We are not registered trading advisors.