—Edwin LefèvreIt was the same with all. They would not take a small loss at first but had held on, in the hope of a recovery that would “let them out even.” And prices had sunk and sunk until the loss was so great that it seemed only proper to hold on, if need be a year, for sooner or later prices must come back. But the break “shook them out,” and prices just went so much lower because so many people had to sell, whether they would or not.
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The success of chart-oriented trading is critically dependent on the effective control of losses. As mentioned in Chapter 7, it is not necessary to be right half the time; what is necessary is limiting losses on bad trades sufficiently so that winning trades are substantial enough to return a profit. Accordingly, a precise stop-loss liquidation point should be determined before initiating a trade. The most disciplined approach would be to enter a good-till-canceled (GTC) stop order at the same time the trade is implemented. However, if the trader knows he can trust himself, he could predetermine the stop point and then enter a day order at any time this price is within the permissible daily limit.
