\u201cSo what do you think the single most important rule of trading is, Nick?\u201d a friend asked me as we had drinks at the Connaught Hotel in London’s tony Mayfair district.<\/p>\n
As a portfolio manager at one of the U.K.’s top hedge funds, he’s a big deal in the finance world.<\/p>\n
But that evening, my friend was looking worse for wear after a very tough 18 months.<\/p>\n
He had been unwilling to cut his fund’s losses on bearish bets that went against him.<\/p>\n
The answer I gave him was deceptively simple\u2026<\/p>\n
\u201cDon’t lose any money.\u201d<\/p>\n
Of course, traders hear this so often\u2026<\/p>\n
It goes in one ear and out the other.<\/p>\n
But the truth is most of them ignore this rule.<\/p>\n
They may claim they follow it\u2026 but they don’t.<\/p>\n
Instead, most focus on generating the best trading ideas. And that’s where they run into trouble.<\/p>\n
Having put so much work into generating an idea, they become reluctant to sell, even if the trade goes against them.<\/p>\n
Psychologists call this reluctance the \u201cendowment effect\u201d \u2013 the tendency to overvalue anything (including stocks) that you already own.
\nThe One Rule All Top Traders Have in Common
\nAsk a group of 20 world-class traders how they make money\u2026 and expect to hear 20 different answers.<\/p>\n
But whether they are fundamental investors, technical traders or commodity speculators, \u201cDon’t lose money\u201d is the one rule they will all have in common.<\/p>\n
Take the example of value investor Warren Buffett. He said, \u201cRule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.\u201d<\/p>\n
With his focus on global stock markets, currencies and commodities, George Soros’ investment style is vastly different from Buffett’s.<\/p>\n
Yet Soros may be even more obsessive than Buffett when it comes to not losing money.<\/p>\n
As former Soros Fund Management CIO James Marquez explained\u2026
\nSoros would be the first one to tell you that sometimes his actions\u2026 look like the most rookie, odd-lot, wrong-way kind of thing, selling at the lows, and buying at the highs. But it’s much easier to understand in light of his avowed mission: to be able to come and fight another day. He says: \u201cI don’t want to wake up broke.\u201d
\nVictor Sperandeo, perhaps better known as \u201cTrader Vic,\u201d best explained the psychological challenges of implementing this rule\u2026
\nThe single most important reason people lose money in the financial markets is that they don’t cut their losses short. It is a curiosity of human nature that no matter how many books talk about this rule, and no matter how many experts offer this advice, people still keep making the same mistake.
\nThe lesson?<\/p>\n
No matter how bulletproof your idea seems on day one, a trade can always turn against you for unexpected reasons\u2026<\/p>\n
Even if your original analysis was spot on.<\/p>\n
So instead of fantasizing about how a trade will work out in your favor, focus on defining your worst-case scenario.<\/p>\n
And if you are right, the upside will take care of itself.<\/p>\n
Your mission should be, as Soros says, \u201cto be able to come and fight another day.\u201d<\/p>\n
I know my investment performance dramatically improved after I adopted this rule many years \u2026read more<\/a> <\/p>\n Source:: Investment You<\/a><\/p>\n The post The Single Most Important Rule of Trading<\/a><\/a> appeared first on Junior Mining Analyst<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" \u201cSo what do you think the single most important rule of trading is, Nick?\u201d a friend asked me as we had drinks at the Connaught Hotel in London’s tony Mayfair district. As a portfolio manager at one of the U.K.’s top hedge funds, he’s a big deal in the finance world. But that evening, my […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[4],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/663922"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=663922"}],"version-history":[{"count":0,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/663922\/revisions"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=663922"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=663922"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=663922"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}