Today, our Senior Risk Manager, Corey, discusses what he often tells traders who cut winners too soon and let losers run.*
In my own trading, I have seen that there are two great emotions constantly at work in the markets: Hope and Fear.
Too many people become fearful when a trade starts to perform well. They have fear that if they don't take profits quickly, then the gain could quickly disappear.
Surprisingly, most people feel more comfortable with losing positions. This is likely because they feel that losing trades are only a "paper loss" and will often recover. In other words, they are hopeful for a miracle in a bad position and fearful of losing profit in a good position.
If you can flip these two emotions (fear and hope) around, then great success generally follows:
- Instead of being fearful that your gain will go away, how about being hopeful it will get even better?
- Instead of being hopeful that a loser will go away, how about being fearful that it can get even worse?
Happy Trading,
Corey
* NOTE: Some original wording has been slightly modified for legibility.