When to stop
Stopping isn't failing. It's a perfectly normal decision, and there are clear signs that carrying on no longer makes sense.
Learning objective: After this lesson you'll recognize the signs on which you can base a sensible decision to stop.
Advertising only knows one direction: more, further, bigger. That's why hardly anyone says it, so we'll say it here: stopping is a perfectly normal and often the best decision.
Clear signs
Clear signs are: you keep failing to stick to your own rules. Your account has been in the red for months and you don't really know why. You raise your stake after losses.
Signs outside the portfolio
Other signs show up outside your account. You sleep worse. You check prices constantly, even at dinner with friends or at work. You hide losses from people close to you.
No reason for shame
If you recognize such points in yourself, there's nothing to be ashamed of. It happens to a great many people. Talk to someone you trust. And if trading no longer feels like a decision, more like a compulsion, get support from a counselling service. That's a smarter step than the next position.
Looked at soberly, stopping is a decision you can make afresh with every new piece of information. What you've lost so far is gone, however you carry on. The only thing that counts is what you can expect in future. So past losses are no reason to carry on in order to win them back. At most they help you judge how good your strategy really is.
Losing streak or bad luck
The difficult part: a losing run can come from a bad strategy or simply from normal bad luck with a good one. You can only tell them apart after a great many trades, because estimates only get more precise slowly. So don't base the question on results alone. Also look at whether you've stuck to your rules. If you keep breaking your rules, you don't have a strategy that could be judged.
A limit set in advance
A limit set in advance has proven useful, for example a total loss of your trading capital at which you take a break without further discussion. Its value lies in not having to make the decision in the state you're in when it comes up. And regardless of any calculation: if your sleep, relationships or work suffer from trading, it's no longer a maths problem. Then a conversation and professional help are the right way.
Summary
- Past losses are no reason to carry on.
- Set your limit before you need it.
- If trading feels like a compulsion, getting help is the right step.
Did you get it?
Why are past losses no reason to carry on?
Because they're gone however you carry on. For the decision, only what you can expect in future counts.
Why doesn't a losing run alone prove a bad strategy?
Because it can also come from normal bad luck with a good strategy. What also matters is whether you stuck to your rules.
When is the question no longer a maths question?
When your sleep, relationships or work suffer from trading. Then a conversation and professional help are called for.
Check your understanding
Your task
Write down three rules that make you take a break, each with a concrete number, such as a loss in dollars or three rule breaks in a month. Give the page to someone you trust. Set a date when you will look at it together.
Sources and further reading
- For problematic trading behavior, Germany's free, anonymous gambling-addiction helpline offers professional support, also for family members. View source ↗