I literally just watched a video by Sam Seiden that discusses this very thing. I will recount the tale here (based on a true story):
Jim is a trader for a well-known bank. After diligently studying his charts, Jim spies an opportunity. He strides into Bill’s, the head-trader, office.
Jim: ” I’ve found a great trading opportunity in the Market. I only have to risk $1,000,000.00 to make $10,000,000.00.”
Bill scrutinizes Jim’s charts. Convinced that Jim is on to something, Bill smiles and says, ” Put that baby on.”
Jim rushes to his desk and places the trade. In short order Jim’s position in profit $8,000,000.00*. Jim beams as he stares at the computer screen. “An $8,000,000.00 profit might get me an office and a huge bonus”, he says to himself. One hour later, the trade has moved up to the $9,000,000.00 profit level. Suddenly, the market changes direction, and the profit is down to $6,000,000.00. Steadfast in is believe this move is a “correction”, Jim stays the course. Price inches back in his favor an Jim soon finds his position is $7,500,000.00 in profit.
The trading floor swells with activity. The dull roar is now a buzz. Something is going on. Jim focuses on his screen as he tried to drown out the floury of activity around him. Price jumps up. The profit is now $9,000,000.00. In a blink of an eye, it shrinks down to $6,5000,000.00. Jim’s hand inches closer to the mouse. Anther burst of orders, and profit is back to $8,000.000.00. Jim flattens his position.
Jim struts into Bill’s office like the cock of the walk.
Jim: “I exited out of that trade. It netted us $8,000,000.00.”
Bill: “$8,000,000.00 !?! You’re fired.”
Jim: “Excuse me. What do you mean I’m fired?”
Bill: ” You came in hear and told me for $1,000,000.00 worth of risk, we could get a $10,000,000.00 reward. $8,000,000.00 is not $10,000,000.00. Instead of the firm’s risk/reward being 1/10 as you initially said, it was 1/8. In addition, you clearly did not follow your trading plan. Your trading plan called for a $10,000,000.00 profit target not $8,000,000.00. You weren’t stopped out at 8, you exited. So you did not follow your trading plan. This firm can’t afford to employ traders that can’t follow their trading plan. So, you’re fired.
* While it is better to think in terms of points/pips rather than money, for the purposes of the story money is used.
The money you decide not to lose, is the money you win.