I had a shower thought this morning… When I’m in a losing trade, I tend to hold on to that trade with the hope that it’ll come back. I guess that makes me normal, but what is the real story?
The epiphany is holding on or not is we’re not talking about what is already lost – we’re talking about a tiny little $4 commission. Put another way, if I were to simply close the position and accept what is already lost, it is no different than waiting for that loss to be recovered – except that the bleeding is stopped.
Yes, trades sometimes come back, but many times they don’t. Nothing says another trade can’t be taken if the setup reappears.
So, my new strategy is to simply act on my setup. If a setup appears in the opposite direction of an existing trade, then reversing or existing the losing position are the only reasonable options. Holding on is meaningless and careless.
The bottom line is don’t wait and hope to get out with a profit. Get out when the price action tells you to and get back in when price action tells you to.
In the end, it doesn’t matter if you had 10 winning trades and only one losing trade. What matters is profit. You can have 10 winners of $200 each for a profit of $2,000 but one loser of $3,000 blows that out of the water.
Instead, simply exiting with or without a loss will eventually end in success with reasonable entries.