July 20th:To take Profits or Not
We,as Traders,are always left with this dilemma as our trade goes in the desired directionAh,finally after 4 stopped out trades and 2 that one should have adhered to the stops,finally a trade that goes our way..Now comes that irritating dilemma,more a result of Fear than Greed,that gnawing feeling in the stomach:If I don't take this profit here,then this trade will also go the way of the previous 6.The mind then conveniently steps in and gives convincing arguments of taking the profits there and then..Anyway,who goes broke taking profits?What is the harm of taking it all here and getting back in at a lower price?And even if price goes higher,then I'll think about it and reenter.I am already in pain taking the last 6 trades,I need some relief,need to break this losing run and get a win on my trade sheet..So on so forth,the mind goes,each time chipping the firm resolve of sticking to the method,convincing the trader that it is better to take it off..The trader caves in,he takes his profits,in fact why only profits,he takes them all off,ahh,sweet gains,a great feeling, a new highYess!!!!I am back,says the traderGreat Going,says the MindFantastic win,exclaims his friends.Oh No,not so fast,my friend,says the Market,I am gonna pummel you on your next one.And after I am done,this win will look like a drop in the ocean.
Meanwhile the Trader is thrilled,he has finally broken his losing run..he envisages himself as a cricketer who scored 6 sucessive below ten scores,but now puts up a 52.He is backand so he thinks.Price now retracts from the point of exit,the Trader is even more thrilled,he now feels on top of the world,he now places himself on par with the world's best,nothing can stop him,he is truly the best..Price retracts a bit further,he waits and watches,price then gaps up to his point of exit,and starts what would be a meteoric rise,but the Trader does not know thathe waits now for a pullback,a pullback that never comes and when it does,it's too far from his exit..Too egoistic to get in at a higher price,he swears never to look at that stock again,he now feels better about himself.well,no harm done,that trade was still a good trade,it was still a profitable trade.He comforts himself by saying that he did not want to be too greedy,and this rally looks like a blowoff rally anyway and is doomed to collapse,so on so forth.
While so much goes on in his mind,the stats show that he lost x,x,x,x(on his stopped trades),2x,3x(on the trades that he had not taken stops) and made 2x on his last tradeTotally:-7x.He starts to get nervous,irritated,he now looks for a stock that had not yet run up the way the above stock hadand plonks his money there.But Stock B is in a tight range and in consolidation phase,the fact that the entire market had run up and this stock didn't should have told him somethingBut the Trader is in too much of a pain to think straight.He now loses 4 more stopped trades..Sitting at -11x,he is frustrated,disappointed,all that previous highs that he experienced were now a huge low.He now loses his confidence,his inability to pull the trigger at the right time sends him lower and lower.Sitting at -11x,he decides that adhering to stops is all utter nonsense,a strategy to make people lose money more than anything.He gets back into Stock A,hoping that it continues its rise,but Stock A now gaps down freezing the Trader.Refusing to accept his losses,the Trader prays.The Market gleefully preys.At -4x,the Trader gives up.At -15x,he blames the markets,he attributes all his problems to the operators,the government,God,his wife .
This Trader took 12 trades in all,losing 11..even if he had lost 5 at an avg of 2x,therefore -10x,and gained the way he did on the other 7 at x,therefore +7x..he would have won 7 in 12 trades and still landed the month with losses.This Trader had taken 9 trades in the direction of the market trend.The Market blasted upwards,the Trader was long most of the time,yet sustained huge losses..Too much of the Mind Factor coming in?Too much of trying to be smarter than the market?Well,a bit of everything.but this Trader will always wonder if Trade 7 had gone his way and he had not tampered with the play,what the results would have been?Cutting Losses and letting Profits Run,the old adage continues,it is vitalYes,Profit Taking at certain vital points can be an add to the method/system.But there has to be a strategy to it.Mindlessly pulling out small profits can be detrimental in the long run.a cascading effect is triggerred off,finally hammerring you into submission.
Can you go broke taking small profits?Oh Yes,you can.Be careful with this one wrong thought in the Trading Mind.
More on this later.
Sincerely,
Saint
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