HH Managing Your Losing Trades

Amateurs focus on finding trades.

Operators focus on managing trades.

Inexperienced traders spend far too much time on trade identification. Their misguided goal is to find the perfect trade with the perfect entry.

The truth is… perfect doesn’t exist. You’re not gonna find some magical combination with a 98% win rate.

Identifying a trade is really only 10% of the process. The other 90% is managing the trade.

Take it from Peter L. Brandt, a legend who’s averaged over 40% compounded returns throughout his 40 year trading career(!!):

Consistently profitable commodity trading is not about discovering some magic way to find profitable trades. [T]rade identification is the least important of all. In my opinion, learning the importance of managing losing trades is the single most important trading component. Consistently successful trading is founded on solid risk management.

Consider an average year for PLB. Only 30% of his trades become winners. The rest either break even or lose. Yet he’s still extremely profitable.

How is that possible?

It’s because he keeps his losses extremely small. PLB’s major edge is in risk management. Limiting his losses ensures his winners more than make up for the losers. He consistently avoids the big mistake that would knock him out of the game. That’s how he achieves long-term success.

Recently our team dug into a stock called Neonode (NEON).

The fundamental thesis was solid.  

We had a left-for-dead company on the brink of a massive turnaround. NEON previously suffered from “too early” syndrome with its product fit, but now its market was finally catching up.

The play was contrarian to say the least. The stock had already fallen over 80% from its recent highs. Investors hated it. But these same investors were also blind to the drivers behind its soon-to-be revival…

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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