June 9: Most Traders Limit Their Winnings and Let Their Losers Run

It occupies a chapter in just about every trading book ever written, yet all traders do it.

Itís been preached by every lecturing market guru since the Aden Sisters danced to the music of the gold market.

Go ahead and hire a personal trading coach and likely the second thing he or she will utter will be these chosen words (right after Trading is speculative and only risk capital should be used.)

And those words are Limit your losses and let your winners run.

OK. Weíve been told.

But you didnít have to tell us. It makes perfect sense.

On a roll, Go with the flow, Ride the wave, Get out while the gettingís good, weíve heard both sides of those golden words massaged in numerous different phrases. We get it.

During my trading and coaching days, I would re-visit students that I trained weeks or months previously and, low and behold, I would discover that many of them were actually doing the opposite…

Letting their losses run and limiting their gains!

After a while I wasnít surprised I would go into a refresher visit EXPECTING to see limit/run rule, repeatedly ignored.

I would ask the students Why?… There were many different stories but one main theme

All the traders, in some way, had gotten out of emotional control.

During their trainings, I had made sure that they did extensive back-testing on their systems and I did that because… I knew that the more they tested and saw that their system would have been successful, the more they would TRUST in the system and have the strength the follow its signals, especially through rough periods.

Apparently, simply back-testing and seeing would-have-been results wasnít enough to keep these traders in emotional control.

What I had been missing was that these traders were taking the losing PERSONALLY! These new traders had been seeing losing trades as reasons to let negative thoughts into their heads. A loss would mean that all the articles they read about gambling market traders may be true.

All the family accusations that they were crazy traders … well, that could have some merit!

This kind of negative thinking (as well as other forms of trading-related negative thinking) makes it so you donít want to take a loss. If you take a loss, maybe youíre that much closer to that idiot trader that youíve been accused of being.

So you enter a trade (after, say, coming off a losing trade) and it starts to go south.

As the market heads for your stop, you start looking around at the news, or a chart of a sister market or share thatís showing strength, searching for an excuse to make it OK to lift your stop.

Found it.

Hello… Cancel Bean Ticket 4154. … Stop Canceled.

If the market comes back, youíll be the smart guy or gal that made the right move and turned a loser into a winner.

What you REALLY just did, however, was turn a potential winner into a potential loser… YOU. You may have had a winning trade, but you will lose in the end.

Itís not about YOU. Itís about THE MARKET. If you donít take your emotions out of it, you donít have a shot.

You must see yourself as a trader not someone who is becoming a trader.

Thereís very little room for mistakes in your trading.

Leverage makes sure of that.

If you are going to play in the Big Leagues, you have to do act and do what Big Leaguers do… right from the beginning.

Do all your practicing on the paper-trading playing field. Once you put your money up, you either do what your tested system tells you to do or pick a different profession.

If youíre not training mentally, youíre not giving yourself the best chance to laughing in the face of your relatives!

By Norman Hallett

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