We’d all like to find that perfect system. And there are many out there that are pretty close. But even with the best system or alert service, we are still vulnerable to the human condition. If we can stay aware of that, we can shave any losses that do happen as thin as possible.

Here is a great example. We have been talking about a set up that has been doing really well in the current market. MACD Crossovers have been proving incredibly reliable. (check out the article here where it spotted last weeks slide) But there is always an exception, right? So what are ways you can protect yourself when markets. especially your trade, gets squirrelly?

Take a look at this chart:

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Eli Lilly was following our crossover rules. After a pretty long slide that pushed it into a negative MACD territory, it crossed over to the upside. We even go the move above the 10 day that we like to see to confirm the crossover is a reversal. In fact, other pharmas had seen a lift to there was even further confirmation. But it just flat our failed.

One option is to simply hold on and believe that the move is an anomaly. That may work, but it could also cost you a healthy amount of your trading capital. A better approach is to know how much you are willing to lose before you start the trade. It begins with position size. Just like pouring juice in a kids cup, never pour more than you are willing to clean up off the floor. Never take a trade with more capital than you are willing to see go away. That doesn’t mean you don’t avoid losing it with everything you can do but the reality is that some, most or even all of it could simply go away.

More realistically have an amount of loss that is a hard stop before you enter the trade. Fight the human condition to rationalize bad choices and then exit at that amount, no matter what. The key here is that you have to convince yourself that simply getting out on your terms is the win. Even if the move plays out later, you eliminated the risk of losing more than you were willing to. And that’s a win.

Keep learning and trade wisely,

John Boyer


Market Wealth Daily