The above really simple concept is one of the most difficult to implement and is the cause of most investors demise!
The majority of the investors violate their predetermined plans and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position.
These same investors will easily keep losing positions, allowing the market to move against them for hundreds of points in hopes that the market will come back!
In addition, investors who have had their stops hit a few times only to see the market go back in their favor once they are out, are quick to remove stops from their trading on the belief that this will always be the case.
Stops are there to be “hit,” and to stop you from losing more than a predetermined amount!
The mistaken belief is that every trade should be profitable.
If you can get i.e. 2 out of 4 trades to be profitable then you are doing well.
How then do you make money with only just half of your trades being winners?
You simply allow your profits on the winners to run and make sure that your losses are minimal.