John Welsh on the Importance of Cutting Losses Quickly

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The major turning point in my trading career came when I started to track my trades on an excel spreadsheet, as shown in Figure 46.1.

I noticed I developed a problem of adding to losers, which compounded my losses. Once I began to accept losses and cut them quickly, the profits from my winning trades started to exceed my losers and the big turnaround was in place…

Prudent risk management is the key to my trading success. I am wrong at least 50% of the time, yet I am consistently profitable and have been six years running. It’s because I cut my losses quickly. My average loss size is much smaller┬áthen my average gain. When my position goes against me, I quickly take a small loss and move on. There is no point in staying and waiting for it to come back. I can always buy the stock if it sets up again. I can always buy another stock. There are so many opportunities every day.

Source: Chapter 46 – Contrarian at Heart by John Welsh, @johnwelshtrades

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