Key Takeaways
- • Michael Covel argues in a October 26, 2026 blog post that the defining difference between novice and professional traders is how quickly they exit losing positions, not how often they are wrong.
- • Covel contends that professional trend followers are wrong on a large share of their trades, and that the discipline lies in pre-defining the exit point before entry.
- • The post recommends three practical steps: decide where the trade is wrong and write it down, size positions so that a stop-out is survivable, and exit without negotiation when the predetermined price is reached.
- • Covel acknowledges the costs of cutting losses, including frequent small stop-outs and missed reversals, which he frames as the price of admission.
Summary
In a blog post dated October 26, 2026, Michael Covel uses the metaphor of three hands gripping a rope to illustrate how traders respond to losses. The rope represents the loss itself. A new trader grips it tightly, a disciplined trader loosens his grip while still feeling the strain, and a professional trader has an open hand with the rope released entirely. Covel argues that the pain in a losing trade stems not from the loss but from the grip, as traders shift from managing market exposure to defending their original entry, analysis, and public positions.
Covel states that being wrong is not the core problem, since even skilled trend followers are wrong on a significant portion of their trades. The distinguishing factor is the decision process. Professional traders, he writes, define their invalidation level before entering a position, size the trade so that a stop-out is painful but manageable, and then execute the exit mechanically when price reaches that level. In his framing, the rule is set when the trader is calm so that no in-the-moment debate is needed.
Covel is candid about the trade-offs. Systematic loss-cutting means accepting frequent small losses, choppy markets, and occasionally watching a position reverse in the trader's favor after exiting. He contrasts these manageable costs with the outsized damage of a large held loss, which he says erodes capital, confidence, and the capacity to capitalize on the next major trend. His concluding guidance is to write down the exit level before entering, size for survivability, and exit without bargaining, summarized as: new traders grip, pros release.
Covel states that being wrong is not the core problem, since even skilled trend followers are wrong on a significant portion of their trades. The distinguishing factor is the decision process. Professional traders, he writes, define their invalidation level before entering a position, size the trade so that a stop-out is painful but manageable, and then execute the exit mechanically when price reaches that level. In his framing, the rule is set when the trader is calm so that no in-the-moment debate is needed.
Covel is candid about the trade-offs. Systematic loss-cutting means accepting frequent small losses, choppy markets, and occasionally watching a position reverse in the trader's favor after exiting. He contrasts these manageable costs with the outsized damage of a large held loss, which he says erodes capital, confidence, and the capacity to capitalize on the next major trend. His concluding guidance is to write down the exit level before entering, size for survivability, and exit without bargaining, summarized as: new traders grip, pros release.
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