Do most successful traders have greater than 50% of their trades winners or less than 50% of their trades winners? Part 2

Why Capital Preservation and Loss Management Are Critical

If more than 50% of the trades of successful traders are losses, the average losing trade must be less than the average winning trade to end up with a net profit over time. If more than 50% of the trades are losers, traders are primarily in the business of losing! That is our most frequent activity! Do you see why loss management is a critical component of the business of trading! The first thing you must ask yourself when you consider a trade is:

"What specific market action will indicate that I am wrong in the trade
decision and how much will it cost to find out if it is a correct trade
decision?"

When you consider a trade, do you first think about the potential profit or the potential loss? A professional trader always considers the potential loss first. Will the loss be acceptable within the context of my trading plan? If not, the trade must be passed-up. If you want to succeed in the business of trading, the potential loss of any one trade will be no more than 5% of your trading equity. The potential loss is controllable. The potential profit is a “best guess”.