I have been thinking about my trading. Trying to understand why I stay in trades when I think or fear the trade is going to go against me. I know I’m not alone. I’m in a trade. It is progressing nicely, but there’s a nagging feeling in the back of my head that the bottoms going to fall out any moment. Yet, I stay in the trade fearing I may lose out on a big move.
Most YouTube gurus will tell you to set your stops and take profits and walk away. Accepting that your fate is cast and, if you’ve done proper analysis, you’ll end up a winner. Not really bad advise. Especially if you’re prone to moving your stop loss as price encroaches!
I think there’s a better way. I think every candle tells a story and, if that story tells you to exit (or enter) a trade, you should. It doesn’t matter if you’re currently in a trade – either in profit or at a loss. What matters is your up to the minute analysis tells you it is time to close the trade – period. You can ALWAYS reenter the trade. The cost is minimal commission – basically one tick – or missed profits – or losses.
It’s kind of scary to think about it this way, but in the long run, I suspect I’d see more profits and less losses with this attitude.
Let’s say I have a number of strategies for entering trades that average at least 75% success when targeting a 1:1 risk/reward ratio. That means for every four trades, I win three and lose one. If every trade was worth $100, then I’d be up $200 for every four trades. If I traded 40 trades in a day, then I’d be up $2,000 for the day. I’d take that!
If I had a custom indicator that predicted the next candle as either bullish, bearish, or neutral in the form of a percentage with 100% being bullish and 0% being bearish, then I could use that indicator to tell me to add to, stay in, or exit a trade. My absolute rule would be to exit a bullish trade when the prediction is less than 50% and exit a bearish trade when it is less than 50%.
I mean, why stay in a trade when you suspect/fear it’s going to go against you? Because it may not? I suggest that is “hopeful” trading. Sometimes it works, many times it doesn’t. Again, you can always jump back in when the odds turn in your favor.
I know it really sucks when you take your profit and the market continues in your direction. I submit is sucks more when you don’t take your profit and the market does what you’re analysis predicts it will!
I know it is simplistic. That there are pullbacks during a trend and you’ll be missing out on some profits. I’m just saying you’ll also be missing out on some losses so it should balance out and, I suspect, you’ll gain much more than you lose!