The Loss that brought me back to Profit

That was 3 months ago, at the beginning of Q2 earning season. Goldman just announced good results (history repeats itself, bloggers repeat each other) and I considered that headline as an opportunity to enter a short stock index position motivated by purely contrarian arguments and trying to play to Wall Street's most difficult game : "pick the reversal"

When I'm playing that game, I use small positions with a low leverage (1 or below) that allows me a wide stop, generally 3-4 ATR and with on the way between the price and my stop as many obstacles to stop the trend (resistances, MA, retracements, key levels etc) as possible.
If you can remember, if you can't you can easily imagine, I got burnt on this one pretty quickly (1 week or so) and with technical strength against me, I can remember a jump on the RSI and a marubozo.

Too bad, huh?

Well actually that was that loss that brought me back to the positive areas for the year...
It was an eye-opener and having assessed again and again why I lost that money, I finally understood how central banks interventions supported the rally despite of poor economic data and while the problems that led to the crisis are still not fixed. I discussed all these with more details and arguments in my previous posts, that's not the point here. The point here is that after that loss, it looked like I had it right in my trading. Of course the battle for this year is not settled yet and some action is expected for the few remaining months. Of course in many cases I took profits when I should have let run and I let run when I should have taken profit. But globally I've got it right since.

Now when I think back about the things, I can see how the "cut your losses short" rule is important as, to quote Keynes, "the market can stay irrational longer than you can stay solvent". And in the trading game, staying solvent is more important than being right.