The First Goal

When I was much younger ...

... and didn't know better ... I believed the primary goal of a business was to grow. But, I was wrong. The primary goal of a business is to survive! Growth is important, of course, but survival is paramount.

And so it is with with trading. Nice to grow your account. Imperative that you not bust your account and permanently end your days as a trader!

As much as I might wish that I had a magic bullet to the 'not busting your account' problem, I don't, and can only advise that stops are an essential part of trading. Think of stops as an insurance policy to protect you from self destruction.

I make a point of training my mind to think, "Thank you for the insurance," whenever my stops take me out of a position, rather than, "Damn, wrong again!"

I can relate from painful personal experience that stops are not just important - they are essential. And yet, I understand how beginning traders may have difficulty believing this. There's something about personal suffering that carves an indelible lesson into your soul that isn't conveyed with the same sticky permanence just because someone tells you, "Hey, bud, stops are important."

Stories are useful ways to transmit lessons. My story is that because I didn't put a hard stop in place I burned through $6 million. I'm certain others have suffered larger losses, but that doesn't make my loss any less painful.

Would I have learned the lesson without the loss? Perhaps. But, more likely I would not have. The best chance for me to learn the lesson without the pain would have been for someone with real world experience to show me the error of my ways by relating their stories of unnecessary personal loss. That's one reason for this message. Hopefully, readers will accept my lesson without having to go through the pain themselves.

As I have written, the first goal, when all is said and done, is to survive. Stops give traders a chance to do that - to save themselves - and their trading accounts - when prices turn against them. My advice is - use 'em!