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Took a trade today in Staar Surgical (STAA). I’m posting this one because it’s a great example of what I think is the most important part of successful trading: protecting your money when you’re wrong.

Sitting there 30% down in a stock and eating your guts out saying, “if I can only get back to even, I’m outta there” is no different than sitting at a slot machine saying the same thing. You’ve lost the mental battle already. If you get back to even, you’ll be feeling smug and thinking now you can get above even, so you keep throwing your money at the stock (or slot machine) until it finally takes it away from you for good.

Small losses. The magic of successful trading. Not being right all the time. That would make you clairvoyant, in which case one Powerball ticket would do the trick. Small losses. Small losses. Small losses. Then the occasional big gain. Sounds upside-down, but that’s how it works.

Here’s my small loss for today. I’ve cut down to the first hour or so of the chart so you can see the setup I was looking at:

A nice gap up and pullback on decreasing volume that fit my trading criteria nicely. I got in at 7.82 on the break of the 10:10 EST bar. Market holding up pretty well, plenty of upside potential on this chart, tight stop (about 7.73, bottom of 10:10 bar). Love it, baby.

Fast forward to a bit later:

I got out at 7.83 for a wash. Had I been paying closer attention, I may have used the Dave Landry technique and closed half my position at “1R,” which in this case was hit for a moment on the 11:00 bar at 7.91. Had I done that, I’d have closed the trade with a very small gain after commissions… which is about as nice as you can ask for when you’re stopped out.

Why the sale here? It hadn’t fallen to my original stop, but it hadn’t taken off, either. Yet another lesson I’ve learned is the difference between being proven wrong and the failure to be proven right.

If a trade doesn’t follow through per your expectations within a certain amount of time, even if it hasn’t hit your initial stop, get out. Why? When you take a trade you (hopefully) have a definite idea of how soon you expect the stock to move. When it fails to prove you right, if you hang on you’ve crossed into hoping, and hoping is never successful in the long term.

I call this my TIME STOP. Exactly how and where to do this is very individualized. I’m very severe on my trades– I try to give them only 3-5 bars in the time frame I’m trading to make Daddy proud. On 5-minute bars, that’s as little as 15 minutes to get off their ass and show me something. Plus or minus. I step out of some eventual winners this way, but I sidestep a lot of oncoming trains, too. And missing trains that are about to run you over is always more important than trying not to let one get away. That’s just my opinion. You do it your way.

UPSHOT: This thing had failed to follow through, the volume stayed weak, that’s all I needed to know. If it goes to the moon later, fine. I’ll wait for the one that behaves well, and limit my risk in the meantime.

Here’s the chart for the entire day:

Had I hung on and hoped, I’d have ended the day down nearly $300 on 1000 shares. And be rolling around sleeplessly tonight worrying, rather than sitting up sleeplessly, typing. Trust me, this is much better. I’ll sleep like a log when I finish this.