“Why Protecting Capital Supports Long-Term Trading”

Capital is the resource that allows a trader to participate in future opportunities. A single trade should therefore never be allowed to create damage that makes future decision-making difficult. Before entering a position, traders should define the invalidation point, determine the acceptable amount of risk and select a position size that is consistent with their risk plan. This becomes particularly important when market volatility increases because larger price movements can quickly change the risk profile of a position. After a loss, the focus should remain on following the process rather than immediately trying to recover the money. Increasing position size because of frustration can turn a manageable loss into a much larger problem. Similarly, a series of profitable trades should not become a reason to abandon established risk limits. Learning: Capital preservation gives traders the ability to remain disciplined and continue participating when future opportunities appear.