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” You will never go broke taking profits.” – Famous Wall Street quote.
This week’s Whiteboard will strike a nerve with many new and struggling traders. But if you are able to wrap your head around what is discussed in the video, your trading, and possibly your life can change. The ability to let your winners run to their max potential is one of the aspects that separates the winning traders from the losing traders. After years of struggling,this is what actually turned my trading around. I spent a great deal of time finding a couple of day trading strategies fit my personality and allowed me to let my winners be larger than my losses.
Have you ever noticed that very few trades go in your favor immediately? Stocks simply don’t go straight up and straight down. You will have to earn your keep and that means stocks will go against you at times. Especially, if you will be doing counter trend trading like we do here in the Lincoln List. However, just because a stock moves against you initially doesn’t mean its doomed. Since nobody is perfect sometimes trades will go against you and stay against you. In this case it is important not to let yourself get caught in situations where your losses become out of control. I don’t care what strategy you use, you have to find a way to keep your losses to a minimum.
With that said, have you been in a situation where you find yourself underwater and then you hope the stock will come back down? or go back up to your entry price? And as soon as you are slightly green or slightly red you exit? Then moments later, the stock starts going heavily in your favor? Unfortunately, this is far too common situation and most of the time emotions will kick in because you are frustrated and this is what we want to focus on in today’s video.
Something we teach here at The Lincoln List is the process of Idea, Execution, and Management. I won’t go into details of all 3 but your wins and losses and your profit factor comes down to managing your positions properly. Ask yourself these questions.
- Are you respecting your stops? Mental and physical?
- Are you taking profits to quickly?
- Are you trailing your stops or taking partials?
The secret of successful trading is. You HAVE to be a good manager and your average win should at least be twice as much as your average loss.
In other words, you have to let your winners run and cut your losses. Simple right? Not exactly. Humans are emotional and that plays a huge role into our trading decisions. You almost have to be robotic in your day to day operations. Why do you think we teach our members to focus on 1 or 2 set ups. It just simplifies everything.
So whatever day trading system you use, whatever indicator, charting software , scanning software, artificial intelligence, etc.. You have to figure out a way to let your winners run and keep your losses to a minimum. I for one started using hard stops. I simply was not disciplined enough to use mental stops. But I also knew that A) I have to be smart about where to place hard stops and B) know that every once in a while, market makers will sweep stop losses.
Finally, it took me a couple of years to figure my day trading strategy out. It didn’t happen over night. I took a real hard look at myself and asked, what strategy I’m I good at? What do I hate? Where do I struggle? What time frame do I trade best? Then I experimented with multiple strategies using real money. My size was super tiny. I mean like 5 shares. It is funny now, but this is how I learned. It wasn’t about the money. It was about trading properly. Of course now Im trading much larger sizes but that is what it took to program my thinking. Enjoy the video.