Pete I’m reading your e-book.

You recommended to this trader:

“…and the best I can give you is this advice. Number one: don’t trade anymore than 300 shares maximum, ever, until you can string together two consecutive months, at least, of net profits.”

Pete–a threshold merely on share size alone does not cover risk.

This is an area where many a trader fails–because they presume trading “small” and keeping risk “low” while learning means a nominal amount of shares… yet at the end of the day they wonder why they are still getting inconsistent results and on an emotional roller coaster.

Risk MUST be limited to MAX $ LOSS PER TRADE where proven wrong..and for it to be truly effective must be far less than one would be willing to tolerate with a proven strategy.

If one simply says “max 300 shares”– this opens the novice to a wide variance of actual dollars lost… since stop location is never constant at time of entry if truly identifying area on chart proven wrong.

This is another area where new struggling traders get it wrong- by simply setting an abitrary static stop distance for each trade. Problem with this at the exact location where stop occurs could be the highest odds location on chart where actually proven right!

Pete– I see to this day traders errantly say “Darn… I only had 200 shares in FB–wish I had more… it ran 3 points… normally I get at least 400 shares.” Yet when I ask them “How much did you have at risk if proven wrong” —SILENCE.

Or– “What is your average max $ loss you typically position size for?” — SILENCE. When pressed again “Umm… 100-300 shares typically”.

WHAT??? This is very typical of the majority of novices–who truly dont have a clue what risk is…and how to effectively measure it so as to completely eliminate the emotional attachment that can come from a loss if wrong.

The other issue is this:

In order to effectively gain expectancy metrics across a particular strategy– sample size is CRITICAL. When determining if a strategy is worthy of continued execution over the long haul– we need proof that the setup criteria is indeed high probability… the only way to accomplish this effectively is with MORE trades– not less.

It’s not about the money at this point… so despite the fact one may be up $100/$400/$1000 etc on any given day– if the perceived setup shows up 4 more times in the day– the trigger MUST be pulled! Why would it not– if it is A+ — there is no reason not to. If proven wrong 4 out of 4– there should be no emotional attachment – because the trader in advance accepted this period for stat purposes– with the INTENT OF ADJUSTING RISK TO A LEVEL WHERE MONEY TO BE MADE IS EVENTUALLY THE GOAL…ONCE A STATISTICALLY MEANINGFUL # OF TRADES IS ACCUMULATED.

Stopping because big profit is already gained can lead to perception and fear that the gains were simply random– and unhealthy beliefs that edge may not in fact exist…therefore “I better quit while Im ahead”.