The mechanics of trading can be reduced to the common sense expression “buy low, sell high” (the reverse for shorts, of course). It is for this reason that some trading coaches argue that the exit is the most important element in trading. This advice has merit given the fact that many traders get shaken out of good (winning) trades shortly before the trade “works.”

To tenaciously trust one’s original premise for the trade and weather the storms of adversity, however, only makes sense if the entry made sense. Stubbornly holding a position due to one’s arbitrary commitment to a particular “story” is the main reason so many futures traders go bust. Like a heat-seeking missile, the market will sense your mistake and take you to your ‘Uncle Point’.

You might assume that the lesson is to learn to take losses while they are small. This is true, but the equally important lesson is to pay a great deal of attention to your entries. Careful entries include a well-defined margin of error. The better the entry, the smaller that margin needs to be and the easier it is to take the loss.