One of the most common problems for traders is learning when and how to cut losers and keep winning in forex trading. Let’s talk about the latter today.
Have you ever asked yourself “Should I take the profit now or let it run?” Are you in the middle of an open trade?
There may have been times when taking profits early turned out to be a better decision. However, I think there have been instances of people hitting the back of their heads for closing deals too early.
Why do traders tend to cut profits early anyway? Here are three possible reasons:
They don’t have a clear profit target in mind.
There is nothing wrong with determining profit targets as trading progresses. It is much easier to keep trading with a clear profit target as it is easier to complete the task with the target in mind.
They have a low tolerance for risk.
A trader’s lack of appetite for risk can also contribute to premature profit taking.
Some traders would rather have certainty and secure a profit of US$100 than risk a portion of their unrealized profit for another US$50.
They are unsure of their trading ideas and trading skills.
It takes a great deal of patience as well as a great deal of confidence to keep trading until the price hits your profit target.
There are many uncertainties along the way, making it even more difficult to remain confident in your trading ideas.
Seeing your profit potential grow makes it even more tempting to lock in those wins than to keep trades open and risk losing them.
It is said that one bird in the hand is worth more than two in the bush.
But more than the potential loss of unrealized gains, what drives traders away is the frustration that often accompanies these missed opportunities.
As traders, we tend to be too hard on ourselves. You might cut your gains short to avoid blaming yourself if you lose unrealized gains.
This is probably why my favorite trading psychologist, Dr. Brett Steenberger, points out that in order to keep winning trades, you need more confidence to keep trades in your favor. That’s why. But how can this level of confidence be achieved?
trust yourself.
yeah, it’s that easy. Unfortunately, it’s not as easy as it sounds. As much as you can trust your trading ideas, you must be able to stick to your plan and keep trading until you reach your planned profit target.
Dr. Steenberger says there are two ways to build self-confidence:
1. Instill a confident mindset
This is the part where you mentally prepare yourself in case the price retreats and paper gains are erased.
For example, when trading, determine possible retracement areas and set trailing stops accordingly.
You may be stuck from a fake out or retracement to a reversal. Do not blame yourself for lost profits. Instead, remind yourself that you took good care of yourself and that there are other opportunities available next time.
2. Build on small changes
By this, says Dr. Steenberger, we need to do the right thing a little at a time and build up those efforts to start making bigger changes.
For example, you can lock part of your profit at one point and leave the rest open to hit your profit target or stop loss. This way, you can be confident in seeing your trades through to the end while realizing your profits.
Markets don’t always behave the way you want them to. But don’t you want to make the most of these times?
