Trader Vic--Methods of a Wall Street Master
If you want to win, you’ve got to know the rules; and also, you can’t win if you’re not at the table.
When you make a trading decision, you should feel absolutely confident that you are right, but you must also recognize that the market can prove you wrong.
Once you establish that point, nothing should stop you from closing out when the market hits it. This is the basis for the rule: cut your losses short.
If an alligator ever gets you by the leg, remember that your only chance is to sacrifice the leg and drag yourself away. Translated to market terms, the principle is when you know you are wrong, close your position.
I protect capital first and work for consistent returns, and take more aggressive risk with a portion of profits.