‘Cut short your losses, ride your winners’ – It is easier to preach this adage but difficult to follow. But it is the one thing that stands between a winner and a loser. So, should you want to be a winner, then you ought to master this art. Before that, let’s examine why most traders weren’t able to crack it.
No plan in place
When you enter a trade impulsively without a target in sight, you tend to be satisfied with the little you have got. There is no harm in taking a spur-of-the-moment decision, but you can improvise by creating a target when the market starts moving in your favor.
Humans tend to correct their mistakes and traders tend to overcorrect them. Say in the recent past you held a position longer that it turned itself from a winner to a loser, you tend to over-correct it in the next trade. The previous trade has no relevance to the current trade. Period!
Trade-off over unrealized profits
Conventional trading wisdom says not to be greedy. So traders tend to settle with what they have got in hand rather than betting on a risky future. But do remember, it is also not wise to settle for less than what it is worth. As I said earlier, it is easy to preach. Trading is a battleground and you get to only a split second to decide. You either make it out in that little moment or go home with red paint all over your face. So, don’t be hard on yourself. Here are two mind hacks that can help you overcome this situation.
Take ownership of your choices
You know the risk involved in not booking profits. You also know the reward that awaits you if you hold on to it. So make a trade-off. But whatever the outcome of your decision, don’t be hard on yourself. Because you risked your profit for an even bigger profit, it’s not a bad decision by any means.
Book partial profit. It is what most traders do when they find themselves in this predicament. It can satisfy the good part in you of not being greedy and keeps the chance open to take a piece of the big pie.