Managing Losses Is The Hallmark Of Success

On Thursday, May 3, I sold my position in Potash (POT) for a nice gain. The May 165 calls (PVZEM) were closed out at $23.70 ($2,730). This resulted in a nice gain of $7.80 ($780) per contract. I had expected POT to explode higher on the news of a stock split. This didn't happen so I decided to close the position and book a good profit. In effect, the stock moved from $179.30 to $188.30 which is a $9.00 difference. The option gained $7.80. The difference of $1.20 was eaten up by a bid/ask spread of .40/.50 and the time value attached to the option. It eroded as the option gained in value and moved deeper into the money.

I have no positions open at this time. I will be looking to make a few trades this coming week. Can the markets keep blazing ahead to new highs? Will the S&P 500 finally challenge its all-time high, only some 20 or 30 points away? May is not usually a good month for the stock markets. And the June-August period is often a slower time for trading in the markets. That is because the successful traders are taking time off to get in some R&R while the getting is good. And why aren't you one of them? With the market blazing ahead in blissful-bull fashion, you would be hard pressed to find anyone that has not made a bundle over the last 10 months. Right?

So, with all this monstrous success the bullsters have enjoyed, it seems to me that 90% of the trading world will be on holiday for a month or two during the summer. I would be guessing the market might as well shut down for July and August. There will be no one left to trade. Except for you and I, perhaps.

I think the main reason that the professionals are so profitable is because they have mastered the one major stumbling block that keeps the majority from enjoying true trading success. And that is the management of risk through a formulated plan to control losses. It comes down to this; fail to keep losses under control, and you will fail as a trader, every time. Can you think of any other reasons why so many traders blow their accounts out of the water? You start trading because you have capital to work with. You stop trading because you were so generous and gave all your capital to the market wolves. How did that happen? No controls in place to limit losses. That is the main reason you have not joined the ranks of the prosperous traders. You can get a lot of parts about trading wrong, like entry or picking the wrong stocks, but irregardless, you always can exercise control over your losses. You cannot control price after entry, only the amount you surrender to the market predators.

This is a part of self-discipline. Learn to manage your losses and you can succeed beyond your wildest dreams. Think about this. Have you mastered this concept? You can't just do it in a paper account. You have to be in the trenches, forging your way into trading profitability. It takes time and self-assessment. It also takes much patience and persistence. These are attributes that many never master or create for themselves. Trading behavior can be learned; however without the discipline to apply that learning, you will suffer major losses sooner or later. That is the destiny of the majority of traders. And they meet that destiny simply because they do not prepare for the worse. I didn't say expect the worse. Most traders expect nothing but profit after profit. Do you have an open mind? Can you see that your trading career will eventually come to a screeching halt without executing risk control on EVERY trade? Or, you may be one who will never have any losses since you are a master stock picker. See you in the trenches.