When to stop
Stopping isn't failure, it's a routine decision. There are clear signs where continuing no longer has a sensible expected value.
Advertising only knows one direction: more, further, bigger. Since nobody else says it, we will: stopping is a completely normal, and often the best, decision.
Clear signs include: you keep breaking your own rules. Your account has been down for months and you don't really know why. You raise your stake after losses.
Other signs sit outside the account itself. You're sleeping worse. You keep checking prices, even at times you're meant to be somewhere else entirely. You hide losses from people close to you.
If you recognize any of this in yourself, that's nothing to be ashamed of, and it happens to a lot of people. Talk to someone you trust about it. And if trading no longer feels like a decision but like a compulsion, get support from a counseling service. That's the more sensible move than the next position.
Economically, stopping can be framed as a decision under ongoing information. Since sunk costs are irrelevant, whether to continue hinges entirely on expected future outcomes. Past losses aren't an argument for continuing, at most they're a data point for estimating your own expected value.
The statistical difficulty is that a losing streak can come from either a negative expectation or normal variance around a positive one. Because the standard error falls slowly, a reliable distinction only becomes possible at a substantial sample size. In practice, that means the question of whether to continue can't be sensibly answered from the outcome alone, it also needs process quality, meaning rule compliance.
For stopping, a predefined cutoff threshold works well, such as a maximum total loss of trading capital, at which point you pause without further evaluation. Its value lies in the decision not being made in the state it would otherwise have to be made in. Regardless of any calculation: once trading starts interfering with sleep, relationships, or work, that's no longer an optimization problem, and talking to someone and seeking professional support is the right path.
Summary
- Past losses aren't an argument for continuing.
- Define your cutoff threshold before you need it.
- If trading feels like a compulsion, support is the right step.
Did you get it?
Why aren't past losses an argument for continuing?
Because sunk costs are irrelevant to a future decision. Only expected future return matters.
Why isn't a losing streak alone proof of a bad strategy?
Because it can also arise from normal variance around a positive expectation. Rule compliance also needs to be considered.
When does this stop being a math question?
When trading starts interfering with sleep, relationships, or work. Then talking to someone and getting professional support is what's called for.
Related
- The one-percent ruleStage 2
- Risk-reward ratioStage 2
- LeverageStage 2