It is easy said than done. What is it “stay small”?
Stay small refers to opening only as many trades and as big so you stay comfortable with it even when the trade turns against you.
You may say that it is obvious but it can be very tempting to break this rule. Let’s say you open a trade which is withing this rule and everything goes great, the market goes up, your trade performs well and you are in euphoria. So you open another trade. What can go wrong here. You will be out of both trades in a no time for a big win.
But the very next day the market crashes and both trades go against you. Your buying power shrinks by 70% and your net-liq by 50% in a day!
How would you feel? Terrible, mad, angry, frustrated, scared? You will feel pain and fear because you know that at some point if the market doesn’t reverse, you will be forced to close your losing positions upon a margin call and you will be helpless. That’s how losses come.
Believe me, I have my own experience and I still fight with my own temptations breaking this rule and then being mad at myself. Don’t repeat my mistakes!
To avoid pain, open only one contract, if you have to, to stay in your comfort zone and wait until its end before you open a new one. That’s the rule #1.
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