risk
Cut losses, let profits run
The rule
The oldest rule beats any entry signal. A chart's real job is the exit, not finding a magic buy point.
Where it flips
But cutting on every tiny wiggle turns 'cut losses fast' into death by a thousand small whips in a noisy stock. The fix is to place the stop where the setup is truly wrong, below the pattern and beyond normal noise, not so tight that ordinary movement triggers it.
Livermore learned the hard way. Survival and results come from handling a position after you buy, not from a perfect signal before. Cutting a loss fast keeps a small mistake small. Letting a winner run is what pays for the many small losses. Most readers do the opposite. They fuss over the entry, then hold losers in hope and sell winners in relief. A chart is most useful as a tool for where to exit, where to trail, and when your reason has broken.
A worked example
A reader takes two positions. The losing one is held and bought more of, because selling would 'make it real'. The winning one is booked after a quick 6% to feel safe. Months later, the loss is deep and the winner has doubled without them. The entries were fine. The exits flipped the rule. [illustrative]
How to spot it
- ·a losing position bought more of, rather than cut
- ·winners sold fast for relief while losers are nursed in hope
- ·a stop set by comfort or a round rupee number, not by where the reason breaks
Jesse Livermore · Reminiscences of a Stock Operator