“Damage control can prevent failure, but it will never elevate you to excellence.”
“Now Discover Your Strengths”, by Buckingham and Clifton
When I ran across this quote, I was stunned. “Is that true?” I pondered. Then almost immediately I said, “Of course.”
As traders we need to do both. We need to pursue excellence even as we maintain damage control. We must protect against undue loss even as we seek opportunities for maximum gain.
It’s an emotional, artistic, and technological balancing act summed up by the trading cliché, “Cut your losses, and let your profits run.”
It’s easier said than done. How many times have you skipped a promising trade because you sought to avoid loss? How many times have you jumped out of a winning trade to secure your current profits only to despair as the trade soars into the stratosphere without you?
Computers have been programmed to play checkers not to lose, but the set up turned out not to be sufficient. In order to succeed, the computer had to be trained to play to win.
Many traders have failed because they abhorred loss and feared consequent failure. Other traders have failed because they ignored the possibility of loss in their reckless hunt for gain.
Risk management is necessary, but if it is your primary focus, you’ll have a hard time getting to the pot of gold at the end of the rainbow. On the other hand, if all you think about is the possibility of gain and overlook the potential for loss, you could find yourself falling off a financial cliff.
Trading is a delicate balancing game where optimism requires a seasoning of caution, but the primary goal still needs to be excellence and profit.