Run Winner Run
Probably one of the fist trader cliche advice lines that you ever heard was ” Cut losses early and let your winners run” I don’t disagree with that line but as you know its easier said than done. For starters, we have no idea once we enter a trade what the outcome will be. Despite our best efforts in analysis and research once we enter a trade we are at the mercy of the market. We have no idea if this trade will be a loss, a small win or once in a lifetime mega victory. However, there are things that we do habitually that prevent us from ever capturing a large win. Below are a few problems and tips to solve them.
Problem 1 The begging win– . Many times after we take a few losses or perhaps a much larger loss than normal on a trade we become desperate for a win. So desperate that we are looking for something, anything to break that losing cycle. Often times on the next few trades as soon as we see some green for a second the impulse is to snatch the gain and that is what is most likely done. Many times that trade was “the trade” or the one that was special.
Solution – develop traders amnesia. If you want to be a successful trader you need to have a short term memory when it comes to losses. Because each trade is unique each should be judged on a trade by trade basis. You cant worry about how much you have lost or how many in a row you got nailed on. You need ultimate focus on the current trade and the task at hand. Instead of snatching the gain because you need a win take a moment to focus on the set up, the reason you entered the trade and the original targets and see if the trade is still in play.
Problem 2 Patience. We have all done it and that is the problem. We jumped in a trade, nailed a couple hundo in 25 seconds and fell in love with easy money. It would be nice if every trade worked out like that but they don’t. As a matter of fact most trades you take will need time to manifest. Its in between this time where the self doubt and second guessing creeps in the brain. You know what I mean here, this can lead to a mountain of poor exits. If you get into a habit of thinking every trade will work out immediately for you, you will condition yourself to be absent patience. Patience is a major factor in the success of traders.
Solution- Chill out!– Give yourself a little more time for each trade to play out. The root of this problem many times starts with the position sizes we select on the initial entry. When you size up heavier than normal in a trade your anxiety level naturally increases and a short patience fuse is sure to follow. Use comfortable position sizes and your patience level will be much better
Problem 3 Firm on stops flexible on targets. Many traders have an outlined stop area once a trade is entered but have absolutely no idea when to get out. You would think that exiting would be the easy part and entering would be harder but that is not so. Oddly I see this too much. Remember exiting is more important than entering. Poor exiting leads to missed gains and worse abnormal losses. If you are going to be firm on your stops you will need to do so on your exits otherwise your average loss will double your average win size and the only way you will ever be profitable will be to win 100% of the time and that is not going to happen.
Solution- Stick and stay to earn your pay. Your process and analysis you have set up for yourself, fundamental or technical, should not only provide loss targets but profit ones too. Prior to entering a trade the target should already have been visualized and discussed. You owe it to yourself to hang in there a bit longer for the ultimate prize.After all you put all of your time and effort into researching and analyzing this trade. The least you could do is allow it to go to work for you.
For those that really struggle with profits a trailing stop is also an effective tool. This is where you reduce an amount of your original position once an initial move is made in your direction , usually 1/2 to 3/4 of the position is closed for a smaller profit and the remaining 1/2 of 1/4 is left open for another run in the stock. This makes you feel good because you did book a win and you have a little house money to work with. Surprisingly (not really) stress free trades seem to work better.
Remember each trade has multiple possibilities as to its outcome. The challenge will always come from being able to enact these lessons while in the middle of multiple trades, scans and new ideas. These are just a few of the many problems we can occur that hinder us from being successful. For those that are looking for live trading environment that teaches daily lesson and builds consistent winners take a 14 free trial to TheLincolnList.com by clicking here.
Doug
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