In this business, everybody’s a little flawed, and that’s okay. The mistake isn’t in being wrong. It’s in staying wrong. What’s killing most traders isn’t the market; it’s the delusion that adding to losers and selling winners is some kind of viable strategy. Let’s call that what it is: a slow-motion train wreck. And yet, people keep doing it because they lack one essential discipline, an exit strategy.
You want to know the fastest way to blow out your account? Trade without knowing where you're getting out. The market wants you to bail on your winners and dig deeper into your losers. That’s how it feasts on retail traders who think hope is a strategy. It's not. What is? Having your exit defined before you even think about entering.
That might sound “too conservative,” but far from it - it opens the door to massive winners…
Let me be clear: I never place a hard stop-loss. Never. I don’t turn my trades into market orders for some machine to gobble up at the worst possible moment. But I always have a stop in my head, a psychological barrier. Call it “Exit Stage Left”: When the script isn’t going your way, you get off the stage before the curtain falls.
Let’s take a minute and talk about “doubling down.” If a position is losing and your instinct is to add more, stop and ask yourself why. The answer is probably pride or panic, neither of which are in the trader’s toolkit. The smarter move? Add to your winners. Let that sink in. If you’re in the green, press it. If you’re in the red, cut it or hedge it. Winners deserve more capital, not losers.
And no, buying every dip is not a strategy in a bear market. It’s a financial kamikaze mission. Retail doesn’t have the margin runway to survive that approach. Institutions do. That’s why they’re siphoning off profits while you’re getting margin-called out of existence. If you’re long and it’s not working, do not add. That’s the oldest mistake in the book. Instead, pivot. Hedge. Short a correlated name… or three. That’s what we’re doing with nearly half of our Genesis Cog positions at this very moment, and they’re all cooking. Create balance.
Here’s the thing: some of you are still operating like it’s 2013. That world’s gone. Valuation matters again. And when the VIX is calm while the S&P drops 60 handles, the market is whispering something: it’s not panic time, it’s recalibration time. So stop flailing.
And remember, the goal isn’t to be right. It’s to survive long enough to profit. Buy value at the right time, not just because the stock dipped. Don't short a name trading at 6x earnings in a bear market; you’re begging to get steamrolled if that multiple expands.
The key to survival? Look up, look down, understand the volatility map. Identify horizontal support and resistance levels before you put capital to risk. No exceptions. Make notes. Draw arrows. Know the line in the sand.
Bottom line, if you don’t know where the exit is, don’t walk into the building. That’s not trading. That’s wandering in traffic blindfolded. And the market has no sympathy for that.
By Professor Jeffrey Bierman, CMT