Hi all... hope you've had a great Easter long weekend.... I know I did!
I've had a lot of great feedback from the last "Portfolio Control" post. Hopefully you've all had time to think about how important position sizing is to your trading and trading account. It is actually considered to be one of the main pillars of trading. There are more, some of which I will discuss in this post.
Don't Let a Trade Become an Investment
One rookie mistake that I must admit I'm very guilty of committing is rationalizing your trade as an investment when it doesn't work out. Let's say that you bought some shares in Advanced Micro Devices (AMD) because you thought it was a good short-term trade, but it didn't go your way and the stock fell. If you've had a predetermined stop-loss price it should remain there and you should get out when and if its hit. But what many beginner traders do is that they rationalize that AMD is a good company anyway and bound to go up eventually so maybe I will keep this for the long term.... it will go up.
This will ruin your account in the long-term, because its not good trading. Those positions pile up in your account, you lose track and they may very well end up going the way you want, but all the same they might go against you more and more everyday. When you finally close it, it will have eaten into way too much of your hard earned profits.
A very important trading rule, and one that I still need to remind myself from time to time is NOT to let a trade become an "investment."
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