It only takes a short 10-minute drive to reach the busiest intersection in my town. Every town has one. In fact, I’m sure you can picture yours right now.
For me, on one side, there’s a busy shopping center with a gargantuan Acme grocery store and Home Depot, with my favorite pizza shop called Amalfi’s tucked in between. On the other sides, are the main artery into town and a spur that leads to bustling Interstate 95.
Like I said, it’s busy.
It’s also dangerous.
You see, while everyone knows – on some level – that it’s important to follow traffic rules, it’s a long stop light, and no one likes waiting.
That means drivers are constantly zipping through a stale yellow light or trying to sneak by a light that “just turned red.”
Now, for most of my life, when someone ran the red light, nothing much happened – a few horns beep, choice words are yelled, creative hand gestures exchanged – but nothing drastic.
That was, until we had our first major crash – a driver had run a red light, t-boning another car.
Thankfully, no one was injured.
However, the accident left an almost tangible aftertaste with everyone in town. Looking at the intersection now, it’s completely changed. Outside of the newly installed red-light cameras, people tend to treat the intersection with a little more caution every time they pass through.
Now, there’s a reason why I’m telling you this story.
You see, as traders, it can be easy to fall into some of the same bad habits of those time-stressed commuters at my local intersection.
Only instead of traffic discipline – investors struggle to maintain stop-loss discipline.
Thankfully, here at The 10-Minute Millionaire, we have steps we can take to avoid such a fatal accident.
And I’m going to be sharing one of them with you today…
Stop the Loss, Stop the Pain
As 10-Minute Millionaires, we know that each trade is just one piece of a much larger puzzle. Probability is in our favor if we follow the system, but we know that this a probability of a win, not the certainty of one.
That’s why every trade needs a predetermined way out…an exit plan for when you the trade doesn’t go as expected.
That’s what makes stop-loss orders an extremely simple and powerful way to excise emotion, and downsize risk.
Once you’ve decided to use a stop loss, you think it’d be foolproof, right?
Plug in the numbers and you’re off to the races.
If only it were that simple.
From the onset of our journey here at The 10-Minute Millionaire, we’ve told you that the greatest force working against your goals toward reaching millionaire status is yourself.
And managing your risk is no different.
Fact is, it’s okay to be wrong here and there. In fact, as a 10-Minute Millionaire, you are a realist; you know we’ll be wrong on a certain percentage of trades. It’s all part of the game. But you can thrive in that game as long as you have two things working for you:
- A system that pays off much more than it costs you, over time.
- A risk-management system that avoids the bet-the-farm investments and keeps the losses you inevitably have at a low level.
The bottom line is, at some point, you will get stopped out of a trade. It happens. And in investing, it happens with a frequency that we know and understand.
But after you’ve lived through a few, even if you know they’re coming, that’s when the doubt kicks in.
After a while, new traders will start asking themselves: “Should the stops moved to a price further away…or maybe not used at all?”
Once that mentality kicks in, you’ll be tempted to adjust your stops – move them down – ultimately veering you away from the predetermined plan the 10-Minute Millionaire system put into place.
Don’t make that mistake.
Because it’s a big one.
It’s one of those costly errors that separates successful 10-Minute Millionaires from the typical market trader.
The reality is that more trading accounts are crushed for lack of stop-loss discipline than any other reason that I’ve seen.
That because, again, our Number 1 human foible – making decisions based on emotion instead of logic – is our single-biggest enemy.
Just setting a stop isn’t enough.
It takes discipline to keep it in place and to keep from succumbing to our emotions.
If you find yourself struggling to be a winner by “keeping your commitments” – maintaining your stops when your trade moves against you – you’ve got plenty of company.
But don’t despair.
After decades in the markets trading and teaching others, I’ve developed many tools and techniques to help traders who have a tendency to ignore their stops. I’ll share these with you from time-to-time.
And today I’ll share one of those techniques that has helped thousands of traders…
Honor Your Stops Tip- Write Them Down
Writing down your stop loss price might sound like a simple. And it is.
It IS simple. And it IS a solution – and an excellent one at that.
In fact, taking the time to sit down, and write down your stop prices with pen and paper is one of the best tricks in the game.
Research published in periodicals as diverse as Harvard Business Review and Psychology Today is clear that writing down a commitment makes us substantially more likely to keep it as opposed to just make a verbal commitment.
There is something about the combination of the physical act of writing and the visual nature of seeing the numbers on paper that makes the information click in our brains.
My favorite way to do this is keeping a trading log.
Just grab your favorite brand of notebook and write down a few simple column headings: date, symbol, entry price, stop-price and profit target. Don’t make it too complicated.
And don’t take this trick lightly.
This is such a big deal, I’m even going to ask you to go a step further and demonstrate your personal commitment to keep your stop.
Sign your initials for each trade entry. Now you’re adding extra incentive – to keep the contract you just made with yourself.
The bottom line here is: the ultimate key to success – the strategy that the best traders utilize – is to learn to remove emotion from the equation and accept that the occasional losing trade is just part of the game.
Great traders are the masters of the fine art of “framing” a trade, including setting and keep your stops.
And they accept those occasional losses with no second-guessing or personal recriminations.
I can put this in very simple language. Until you can set and keep your stops every time nothing else I can teach you will help.
It’s that fundamental. It’s that important.
Keep your losses small and let your winners grow and you will make money.
Lots of money.
In fact, you’ll make a fortune.
And we’ll do it here together at The 10-Minute Millionaire.
D.R. Barton, Jr.