Stop

I'm reading Martin Schwartz's book, Pit Bull. His advice on capital preservation is reinforcing what I have been writing about in my last few posts. Here is some of his advice.

The best way to end a losing streak is to cut your losses and divorce your ego from the game.

The best way to stop a losing streak is to STOP!

STOP THE LOSSES, STOP THE BLEEDING. Take time off and let your intellect take charge of your emotions; the market will be there when you return.

You can never shift from reverse to first gear without first going through neutral.

YOU MUST CHANGE THE DIRECTION OF BAD TRADING BY FIRST SHIFTING TO NEUTRAL.

YOU MUST STOP.

The most important thing is to protect your trading capital until you can regain your equilibrium.

Pit Bull: Lessons from Wall Street's Champion Day Trader

Pretty simple stuff.

So simple you could ignore it as you continue your hunt for the holy grail. I would advice you not to ignore it. I would advise you to read it again. I would advise you to take a look at your trading records. See any blow up days that ruined your day, week, or month? Would Marty's advice have been any help on those days?

Schwartz tells a story in the book of a day he was trading S & P futures and he kept adding to a losing short position. His wife, who normally worked with him, was not there that day as she went shopping for a mink coat. :) Marty stated his wife (risk manager) would never have let him get that far out on the wrong side of the market. After conferring with her and his mentor that night he closed out his losing position the next day for a loss of $800,000. He told his wife she better enjoy that $800,000 mink coat.

You cannot trade your way out of a losing day, week, or month. All you can do is limit your losses and wait for your set ups. Stop and wait, maybe the two most important words in trading.

Stop and wait.

Humans don't like to stop and wait. We want to go, and now.

I think the best quote from Marty is "take time off and let your intellect take charge of your emotions; the market will be there when you return."