Trader Q&A

“Holding on To Losing Trades.”

Trading Situation:

Trader Background: Bill has only been trading a few years and has fallen into a common pattern of losing more than he should on trades that are going wrong. Most traders, at some point in their careers, have experienced this same type thing in their trading and repeating the mistake can be very frustrating and have a huge effect on ones profitability.  

Method is designed to:

·        Set up a plan

·        Gain trading control back

·        Stay out of emotions

·        Reduce loses

·        Shift focus

Trader Comment:

“I have been trading for a few years now and I keep running into this same problem where I am in a trade and then it goes against me and I don’t exit when I should, I keep holding on and hoping it will turn around. I never seem to exit when I know I should and ultimately I end up losing more than I should. How do I stop this?” Bill - Florida

 keeps giving the market his money each day when he holds onto losing trades. He knows they are not going in his direction yet he can’t seem to exit with a small lose and instead he holds on going into the H-W-P mode.  Doing this increases the amount he loses and he can’t seem to stop this pattern.  Bill

Coaching Feedback in color: T- Trader C- Coach

T- “I have been trading for a few years now and I keep running into this same problem where I am in a trade and then it goes against me and I don’t exit when I should, ….”

C – The first thing that I asked Bill was: “I guess you are not placing in a hard stop when you enter a trade.” 

T- “No, your right. I figure I can exit on my own when I need to.”

C- This, is a common mistake that encompasses several elements of a traders mindset. The first is ego. It’s easy to think that putting in a stop is for “wusses” and a real man can do it on their own. Now, I am not saying all traders consciously think this but sub-consciously the male ego IS showing itself. Second, and most important is the plan and finally falling into a bad pattern.

Then I asked Bill: “Do you constantly look at your P&L when you are in a trade?”

T – “Yes. How did you know?” 

C- I have said it before, making money in the market can be VERY seductive and it can be hypnotizing if you watch the P&L especially when you’re in a trade.  Watching the P&L increase the emotions you experience good and bad. As well, you may find you are in what I call “Trader’s Trace” where the hypnosis mode takes over and your logical mind goes out the window..

T- “I keep holding on and hoping it will turn around. I never seem to exit when I know I should and ultimately I end up losing more than I should.”

C- Once a trader goes into “trader’s trace” and the H-W-P mode (Hope –Wish-Pray) doing what you’re supposed to do just doesn’t even come into the mind or thought until it’s too late.

Additionally, repeating a mistakes over and over sets it into the mind a pattern that creates a knee jerk reaction verses doing, again, what’s logical. The drawback is this bad pattern can get locked in and breaking it becomes even more difficult.

T- How can I fix this?

 Solutions:

1)     Take the P&L off the screen so it forces you to focus on the trade.  Creating a good trade and focusing on it, is followed by profits.

2)     ALWAYS have a plan and KNOW exactly where you want to enter, how much room you need to give the trade or when the trade isn’t working – your stop order and finally your profit target.

3)     ALWAYS place a stop and profit target order in at the same time you enter the trade. A “bracket order”. If your system doesn’t allow this feature than do it soon after you place your order.

1)     When you look at the P&L you run the risk of increasing your emotions which will cause you to react differently than if you had a plan of attack. Great trades are always followed by profits anyway. So keep your emotions in check. By focusing on the trade only.

2)     Having a plan for each trade will keep you disciplined and allow you to work and re-work a strategy. Just jumping into this kind of market is dangerous and will cost you. Keep re-working your strategies, as the market changes so will you need to “tweek” your strategy. Become what I call a “digger” look at all aspects of the trade and re-work it till there is nothing else you can change to make it better.

3)     Great traders always have a stop in place NOT because they will let the trade work till it hits the stop. In fact most high-end traders know when the trade is not working and they exit BEFORE it hits the stop.  They use the stop in case the market has a quick moves, then they know they are protected.