Page 25 - Trading #101 Course – Part THREE: SETTING UP YOUR BUSINESS – www.traderscoach.com

TRADING #101 COURSE – PART THREE: SETTING UP YOUR BUSINESS – WWW.TRADERSCOACH.COM

Your survival will depend on your ability to be honest with yourself in this process and to
problem solve. We can sometimes try to avoid painful truths, but to be successful that is
not an option. The honesty factor is key to your success.

Setting Stop-Loss Exits Is Essential

Setting stop-loss exits and adhering to them is usually difficult for new traders. There is
often a strong psychological resistance to this concept. The resistance is linked to a
variety of emotions, including fear and greed: fear of being wrong about the trade and
greed of not wanting to get out and take a loss even if it is a small loss.

The other aspect linked to stops is ego.

Many traders almost feel they can make the market do what they want it to do. When
the market defies them, and does not cooperate it then creates anger.

The key to setting stops is to develop skill in setting effective stops that are in alignment
with current market dynamics. In other words, don’t use arbitrary stops that are not
directly related to support and resistance levels.

You will want to give your trade enough room to breathe so that you don’t get
whipsawed and get stopped out repeatedly. Once you have confidence in your stop-
setting skills, you will be more likely to adhere to your stops.

Also, the time to set your stop is before you enter a trade, not after.

You will not be able to make rational decisions on your exit if you wait until you are
already in a trade. The heat of the moment can overcome you and cloud your judgment.

The Infamous Rogue Trader Named Nick Leeson

Oftentimes fact is stranger than fiction and can teach us lessons that steer us away
from danger in the future. Surely if we cannot learn from our own mistakes and the
mistakes of history, then we are doomed to repeat them.

And so, it is with the true story of Nick Leeson, who is infamous for causing the collapse
of the Barings Bank in February 1995. Barings was the oldest bank in the world,
operating for 233 years before the collapse.

It had in fact financed the Napoleonic Wars and counted the Queen of England among
its clients. The story that follows illustrates that no entity is too big to fail, despite popular
belief.

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