The richest and most successful traders all limit their losses on trades that don’t work out by practicing sound money management. To most this usually means using stop orders triggered if a certain price is hit. Nowaday’s markets are so remarkablly volatile there is one successful trader who has a different idea on money management below:

“I and some clients have tried to use stops, but I have found that this is only marginally successful, especially in these markets with wild intra day swings. When the market comes down, stops you out and then goes in the predicted direction, it can be devastating emotionally.

The only way that I have found to limit losses to a manageable level is to trade lightly enough to sleep soundly. You’re not going to get rich overnight. This is an extended process, but over time, you should handily outperform guaranteed instruments as you build assets” – Stephen Todd of the Todd Market Forecast

Stephen Todd’s Success: Since 1993, we have given instructions to mutual fund investors to be either 100% invested or 100% on the sidelines. According to Timer Digest, of Greenwich, CT, which monitors over 100 advisory services world wide, we are only one of fourservices to have beaten the buy and hold over the past ten years.
We were rated # 1 for the past ten years at year end, 2003, 2004 and 2005. In 2006, we slipped to # 3. At the end of 2007 we were ranked # 4.

Since then, we have dropped out of the top ten for stocks, but we were bond timer of the year at the end of 2007 and 2008 which means we were ranked number 1 both years. We were rated # 1 in gold timing for 1997 and again in 2011.