One of the biggest mistakes that traders make is holding on to losers too long. The reason we do this is because we can't stand to lose that money. We can't stand to see our bottom line shrink. We can't take the fact that we were wrong in the trade set up. We don't want to mess up a good winning streak. We got stopped out too many times, only to soon see price reverse in our favor. We got angry because we got tricked and now refuse to budge, but keeping the loss only hurts us, while another trader is getting our money. We got tricked it happens, it is time to cut our losses and move on to another better trade set-up.
Whatever the reason, holding on to losing trades IS A BAD IDEA, that only cripples you.
There are other ways you lose besides losing your money??????
By refusing to take a legitimate loss, (not when price moves against you a few pips in a well established trend, but holding for days, weeks and months), you rob yourself of many more profits. When you lock yourself in a losing trade, you can't take any profitable trades in that pair. Say you are short on the USD/JPY and the pair moves against you, now you have practiced good money management so you can afford to hold on to it until in comes back in your favor, it has now been 6 months. With FIFO (first in, first out) that is 6 months that you could not make money on that pair because you were nursing a loss. If you traded on the pair twice a day that is 318 trades(taking out Saturday) that you have cheated yourself out of over six month, and even if you got just 5 pips per trader, that is 1590 pips that you have missed, but say that you couldn't get every trade, you only got half that is 795 pips that you have missed...........ok, but even that is a struggle, so let's say a third, that is 265 pips, that you have cheated yourself out of, and if you are really a great trader, you know that you have missed so much more, say you were able to average ten pips per trade over the 6 months, then that is 3,180 pips that you have kept yourself from. Let's translate pips into dollars that is $265.00, enough for a nice Christmas present. $790.00, enough for that nice gadget that will impress your Friends. $1590.00 enough for that great TV you want. $3,180.00 enough for a great down payment on your teenagers first car.
You could have traded that multiple times both long and short, instead you threw it all away because you refused to take that loss.
Then the loss gets too big and you feel like you can't take it, because you can't afford to take it now. If you cut the legs off of that monster while it is manageable, it won't grow up to eat you.
Not cutting a loss, increased your stress level, making you harder to live with. Makes you feel sorry for yourself, 'because GOD will help everybody else but you'. You are too worried to sleep, so you stay up and watch the market. You also limit the amount of money you can trade with, because a portion of it is locked in that losing trade, resulting in smaller profits.
You are going bald, your blood pressure is up and you are stressed to hell. Just cut the loss while it is manageable. I know you don't want to give the market your money, but that is part of the price of playing the game. Don't trap yourself into a corner that you can't make money in, it is sooooooooooo much worst than giving the market a few dollars, because you are still able to trade and make more money. What if it takes a whole week to recover, it is still better than that panicky feeling that comes from watching the market go against you day after day after day and feeling helpless to do anything about it.
The right way is to ride the winners and DUMP THE LOSERS, because they cripple you, they pull you down emotionally, they steal your trading confidence and lastly they drain your account as they get greedier and greedier the larger they become.
IS IT WORTH IT??????????!!!!!!!!
DON'T LET YOUR LOSERS RUN WILD, Because many times they will run until they drain you dry.
YOU CAN DO THIS (^_^)
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