Trading psychology uncovered: Why you have to let your winners run
The stock market adage, cut your losers and let your winners run, is a classic example of a saying that makes perfect sense. But it's a completely different matter putting it into practice.
Trying to ignore the interference from your emotions can lead you to do the opposite. That is, cut your winners and let your losers run.
So how can you win the battle over your emotions and let your winners run when you're trading?
Read on to find out…
The impact of emotions on your trading
When it comes to cutting your losers
, greed inhibits you from doing this effectively. You hold on with the hope that things will get better and you won’t make a loss.
And when it comes to letting your winners run, fear rears its ugly head.
Imagine the scenario…
After much research and analysis, you put a trade on a company you think is going to take a leap higher. You set your take profit level as your trading
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The share starts to perform as you hoped it would. But you start getting nervous. What if the trade takes an about turn and you lose the profit you’ve made so far?
Fear makes you bail out of trades too early
As fear riles your doubts over the position, you worry that you made the wrong decision with your take profit level. So you succumb to your emotions and sell.
As luck would have it, the trades goes exactly as you initially planned, soaring past your take profit level.
The inevitable ensues. You beat yourself up for weeks about not sticking to your guns and waiting for the trade to pan out.
This is a classic example of not letting your winners run.
Sticking with a trade and the levels you set requires discipline, and plenty of it. It’s very difficult to stick to your strategy and let a trade go it alone.
But by listening to your emotions, you let profits slip away. It’s vital to use your trading strategy and stick with it.
So there you have it. Why you have to let your winners run