Managing winners like you manage losers...

Ok, so I know the title sounds a little funky. But if you stop and think about it for a minute it makes a lot of sense. It is human of us to hold on to trades that go against us and hope that they will one day come back and we will either get out for break even or a tiny profit. At the other end of the spectrum we sell our winners too soon. I am completly guilty of this but am at least aware of it and am trying to fix this. As this method is completly ass backwards. You should be holding your winners and cutting your losers as quickly as possible.

Before I really got a risk managment system in place I would routinly let things trade against me and have no stop loss in place and would just pray and hope that it would eventually get back to break even. This is not to say that my system is perfect yet as there have been a few slip ups here and there, but nothing like before. Plus you can not expect to change habits over night. But I can certainly say that I have gotten much better at selling losers. But as I got better at selling my losers I noticed myself selling my positions that were working to offset those losses. What a physcholgical accounting mind fuck, right? This makes no sense what so ever. Well today after I cut my last long position I took a step back and had to fight with myself as to whether I should keep my short spreads on that are working and working well or sell them to offset the losses from a few of the longs I sold. This is a good example of the whole physcological dilema that many traders face.

This is when it hit me that I should be treating my winning positions like I use to treat my losing positions. I need to continue to let it run and do its thing. Nothing has changed in the market that is telling me to take the position off. Today I decided that in the long run it will be much more profitable to treat my winners like I use to treat my losers and let them ride.

No one ever said that trading was easy!

Comments

WOW! I think that sums it up

Many of you have been reading this blog may have noticed that my blogging frequency has increased over the past few weeks as I got short the market. As you can imagine I am down money since getting short the market, this is the time when most people pull away from posting. But my goal is to stay active and involved and show you that trading is not always rainbows and butterflies. It is times like these that the things I have been sharing over the past couple of weeks are so important. You need to trade small relative to your account. I have a decent short position in the market and my portfolios are set up to make some awesome returns if we finally turn lower. But something I would like to point out is that my account is 70% Cash. I learned a long time ago how important it is to live by the rules you preach. Because of my discipline I am able to continue to hold my positions, I have time and capital on my side. I can't stress enough how important it is not to get to big....

Stay Small, Stay Out of Trouble

To expand on my post from yesterday about patience. I want to talk about a very important element that allows patience in a position, and that is staying small. If you trade too big RELATIVE to your personal account size, you are likely to be forced to exit the trade before the trade works in your favor. Many trades myself included have all experienced the pains of trading a position way too large given our account size. There is this predisposition out there that the only way you are going to make money in the financial markets is if you are trading 10 lots of options and 1000 shares of stock at the time. This is not the case, and if this is your mentality you will likely ensure yourself trouble. We have all read the stories of traders blowing up their account. I personally think a good rule of thumb is to not risk more than 5% of your account value on any one position. Good Luck Trading! In The Money Trades And 1 favor that we ask: If you like the hard work w...

more good news from FXStreet : Tom Fitzpatrick, senior technical analyst at Citibank in New York. Monday, July 15, 2002 "Parity is a psychological, not a technical level...and whether we pause around parity or not, we are likely to see significant further dollar losses...Our initial target is $1.03 to $1.0450. If that level is taken out, it actually casts a question mark against the whole of the dollar's rally of the last seven years, and could open up a full-blown bear market for the dollar." Julian Jessop, chief European economist at Standard Chartered Bank. Monday, July 15, 2002 "The dollar is under pressure from everything from economic problems to asset reallocation away from the U.S. and corporate accounting problems. It's difficult to see any positive factor for the dollar at the moment. The root of the problem is the U.S. current account deficit. If the U.S. doesn't have to attract an enormous amount of foreign capital, people wouldn't have to wor...

Forex Is Crazy

Search This Blog