2 Rules from Phantom of the Pits

Among the simple set of rules, but a powerful one. I have used these mental rules during FKLI days...I forgot this rules until CL reminding me to bring back this 2 rules from my trading library...

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1. In a losing game such as trading, we shall start against the majority and assume we are wrong until
proven correct! (We do not assume we are correct until proven wrong.) Positions established must be reduced
and removed until or unless the market proves the position correct! (We allow the market to verify correct
positions, we don't allow market to verify wrong positions.)

2. Press your winners correctly without exception. Being right  (Rule 1) does not, in
itself, make the most amount of profit.

 In trading most of you have a greater chance of being wrong than right! Trade
accordingly . . . which means expect the limit (being wrong more likely) in your trading.
How can you come out ahead? In the short run, you can only with luck. But in the long run, luck tends to even back the other way. You must trade in the long run!
So what is a trader to do in a losing game? You must trade in the long run! How can you trade in the long run? Only way I know is that you must keep your losses small and take more small losses than small winners to come out ahead. This often means washing a position for the sake of being able to keep in the game.

The theorem now is to assume your position is wrong until the market proves what you positioned is correct. Keep your losses quick and small. Don't ever let the market tell you you're wrong. Always let the market tell you when your position is correct. It is your job to know you are wrong and not the market's job.

The other side of the coin is that you will get positions that are correct. You must be bigger at that time. This will require a Rule Number 2, which is designed around adding to winners in an unfavorable game to come out ahead in the long run. When you are correct, you must continue to use Rule 1 to keep losses small. It's okay to be wrong small but never okay to be wrong big if you expect to trade in the long run.

Trading is not easy. Most traders just let the market do its thing. The correct way is that you do your thing and control your positioning. You control your positions by using rules that keep you in the game.

Rule 1 is the most important rule in any trade plan. Rule 2 will be the other side of the coin, which must be dealt with if you are expecting to remain in the game in the long run.

(POP)