Rule no.1: Cut Losses Immediately
I did not truly understand this rule when I first started trading.
I had read it everywhere: cut your losses, use a stop loss, keep losses small. It sounded logical, almost obvious. Of course i would cut my losses. I was disciplined, i was rational, until the first time price moved against me.
At first it was only a few pips. Nothing serious. The setup still “looked good.” The market just needed a little room to breathe. I told myself i understood volatility. I moved the stop slightly, then slightly more.
By the time i finally closed the trade, what should have been a small, predefined loss had turned into something that damaged both my account and my confidence.
One of the hardest lessons in trading is accepting that price does not move against your position for no reason.
When the market invalidates your setup, it is giving you information. It is telling you that the conditions you expected are not present, at least not right now.
But ego does not like that message.
Ego says:
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“It will come back.”
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“It’s just a stop hunt.”
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“The analysis is still correct.”
Maybe. But maybe not.
The problem is not being wrong. The problem is refusing to accept that you are wrong this time.
A Small Loss is a controlled decision. When every position comes with a clearly defined stop loss, something powerful happens.
You already know the worst case scenario before you enter the trade.
You know:
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How much you are risking.
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Where the idea is invalidated.
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What the cost of being wrong will be.
There is no drama when the stop is hit.You are out. No debate. No negotiation. No exceptions.
It becomes mechanical and that mechanical behavior is what keeps your equity curve stable enough to survive long enough for your edge to play out.
The Mathematics Behind Survival
Most trend following systems or breakout approaches do not win all the time, in fact they lose often but they lose small.
The entire edge depends on asymmetry:
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Many small losses.
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A few large winners.
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Strict risk control.
If one loss is allowed to expand beyond its predefined level, the asymmetry collapses.
You are no longer running a statistical model you are gambling on hope and hope is not a position sizing strategy.
Why Automation Helps
This is one of the reasons algorithmic traders using MQL5 often outperform their discretionary versions: an Expert Advisor does not hesitate.
When the stop level is reached, the position closes not because it feels right, but because the rules say so.
No ego. No fear. No second guessing. The system simply executes and that consistency trade after trade, month after month is what builds long term performance.
The Real Edge
Many traders think the edge is in the entry logic, a better indicator, a more refined filter, a smarter confirmation.
But the real edge often lies elsewhere. It lies in the ability to act with discipline when every part of you wants to intervene.
It lies in accepting a small loss without emotional reaction.
It lies in closing the trade the moment your stop loss or trail stop is hit, not later, not after one more candle.Immediately.
Rule no. 1: cut losses immediately.
If you break this rule, no other rule matters.
