One of the most difficult aspects of trading for many people is the ability to hold onto winning trades. The temptation to bank profits is always a battle and one that most traders struggle to overcome.
We are hardwired to want to be correct as often as possible. The problem with trying to hold onto profitable trades is that if they reverse and become losers, that goes against our hardwired need to be right. So the majority of traders end up banking profits way too early through fear of that profit disappearing.
It’s quite incredible but most traders know that if they held onto their winning trades for longer, they would actually make more money but won’t do it because it usually means having a lower percentage win rate. This comes back to that hardwired desire to be right more often than being wrong, even if it means making less money!
I was speaking to a trader just last week who had tested a strategy using a variety of different approaches with regards to when to bank profits. Even though one approach made far more pips, he said he didn’t want to use it because the win rate wasn’t high enough so he was going to opt for a strategy that was less profitable, but made him feel more ‘comfortable’ because it had more winners.
The opposite of this is a trader of ours who has really embraced risk versus reward. He doesn’t worry about win rate, he only cares about being the most profitable he can be. To give you an example; across a recent set of day trades over the week, he had 12 losing trades and 6 winning trades but banked just over 4% net over those trades. Now that is what more traders should aim to be like. Forget being right as much as possible, focus on being as profitable as possible, there’s a big difference between the two…
Moving over to the currencies, the USDCAD has been struggling with the 1.3150 zone for some time now as highlighted on the chart. If it closes above this area, we could see a breakout which sees it run to the 200 day moving average at 1.33 in the first instance…
Have a great week
Charlie Burton
Ezeetrader
Join Charlie for 2 free days in the live trading room – click here
Be the first to comment on "Holding on to winners…"