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The basic failing of most traders is that they put a limit on their
profits and no limit on their losses. A man hates to admit he's
wrong. Therefore, an individual will often let his loss ride,
becoming larger and larger in hopes that eventually the market will
turn around and prove him correct. Then after a while, he begins
hoping for a small loss and gives up hoping for a profit. Human
nature also dictates that an individual wants to take his profit
right away and thus prove himself correct. There is an old
saying, "You never go broke taking a small profit." If you are
correct when entering a speculative situation, you will know it
almost immediately and will show a profit quickly. However, if you
are wrong, you will show a loss and you should remove yourself from
the situation quickly. Taking a small loss does not necessarily mean
you were wrong in your thinking. It simply means that your timing was
perhaps incorrect and that you should wait for the correct timing and
situation to allow you to reenter the market. Remember, in any
speculative situation, the market is the final judge. An individual
must let the market tell him when he is wrong and when he is right.
If you show a profit, ride it until the market turns around and tells
you that you are no longer right, and, at that time, you should get
out. On the other hand, the market will also tell you if you are
wrong and it would be a serious mistake to argue with what it is
saying.
http://clix.to/wallmann
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