A crucial principle in trading is to avoid making small gains while incurring significant losses. Although this idea is simple, it's challenging to execute. For example, you place an order with $20,000, and the price rises to $21,000. You're pleased, take your profit, and gain 5%. However, the market continues to rise to $25,000, so you miss out on a 50% gain.
Determined to capture bigger profits next time, you open another order when the market returns to $20,000. The price rises to $21,000, but you decide to hold on, remembering your previous experience. Unfortunately, the market drops back to $20,000 and even below $19,500, forcing you to cut your losses.
This scenario is common and many traders struggle with it throughout their careers. Is it possible to profit in both small and large market movements? The answer is no; you must choose one approach. Personally, I prefer not to focus on small gains.
While it's difficult to perfectly adhere to this principle, and no one can do so completely, understanding this concept is crucial. Your ability to apply it depends on your personal discipline. Each of us should strive to improve how effectively we implement this strategy.
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