Trade Ideas Blog

My Respectful Disagreement About Your P/L

Mar 26, 2009

Andy Swan is a trader, a friend, and a funny guy.  

He’s proven himself in the market and in business as one of the sharpest tools in the toolbox.
And I respectfully disagree with him on this point he made today:

“The best way to take emotion out of trading is to stop caring if you lose and STOP WATCHING your P/L numbers.” Source: “Emotion in trading must be killed

This sentiment may have had its genesis in the following thread:

@ToddStottlemyre @IRON100 Interesting conversation. I trade w/stops of course but watch a real-time P&L -allows me to trade 8-10 positions

Here’s my view on the importance of the P/L in trading:
By no means am I saying cut your trade if you are down a penny.  That said, nothing tells you more clearly how you are doing than your P/L.  Unlike your emotions which say to you, ” . . .  just hang in there buddy”, your P/L is constantly spitting out the truth:
I am winning . . . or I am losing.  Period.
P/L is at the core of money and risk management and without knowing what is going on in real-time you are on a path to failure.  
Granted there’s more than just looking at it and stopping trades if you dip into the red.
You not only need to know your P/L you need to understand it with answers to these questions:
How much can I risk losing per trade?
How does each trade affect the total risk of what I am willing to lose per day?
Know these answers, understand the odds of the pattern to be traded in the market, and you’re ready for anything the market throws at you.  Maybe there’s no disagreement afterall – we both wind up at the same conclusion from 2 different paths: No emotion, no surprises – all reaction.