Techniques to improve your trading edge

Next, we will look at techniques to improve your trading edge, which is the main focus of this chapter. We will start by considering how we shorten the left tail, and bring the peak of losses closer to breaking even.

Technique 1: The game of two halves: how to cut losers, ride winners, and maintain conviction while improving your trading edge

There is an unwritten rule in every hospital around the world: surgeons should not operate on their own family. There is no such thing as professional detachment when it comes to your own child. In the investment realm, however, fundamental discretionary market participants struggle with the idea of stop losses.

They are consistently asked to defend their convictions, yet expected to be surgical about their losses. They are forced to lose impartiality, but still required to maintain professional detachment. If they want to master the short selling game, discretionary participants will have...