Living to fight another day is the trader’s motto and should be what he or she recites on a daily basis. There are going to be times, many times, where a trader makes a bad decision or trade and must decide what to do from there on. We have all been there and will be there again in the future as certain as the sun will rise again. What’s the best way to survive?
Check Your Ego at the Door
Ego is the one thing that gets most traders into trouble. The inability to admit a mistake has doomed more traders than anybody can count. Some think that it’s not actually a mistake if you don’t sell and wait for it to come back. That can be a disastrous strategy as the market can stay irrational longer than you can stay solvent in the words of John Maynard Keynes.
This is one those times in my opinion. The euphoria on the upside with literally no pullback whatsoever in ten weeks has many bears befuddled and dispirited. Holding onto short positions now is very dangerous because nobody knows when that eventual correction will come. Could it be 10% from now? If that’s the case, many shorts will be destroyed and insolvent by the time it comes. It will likely happen when the last bear throws in the towel and covers his short position.
On the same token, the market didn’t turn around in March 2009 until there was complete and utter despair on Wall Street. Dow 6400 was probably much farther down than was warranted by the fundamentals, but those long and on margin were totally wiped out. However, those traders that protected themselves and cut losses by curtailing their egos were able to fight another day and survive.
I know how hard it is to admit a mistake, but it is much worse to hold onto a losing trade in hopes of some magical turnaround. Cutting a loss is actually quite cleansing mentally and allows you to view the market objectively. The more money you lose, the more you have to make back. For example, a 50% loss requires a 100% gain just to break even. How often can you double your money? The bottom line is live to fight another day. It’s that simple.
Staying Alive is an article from: 
