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Holding onto your winners without fearing losing profits

Apr 9 • Between the lines • 895 Views • No Comments

shutterstock_117164038Amongst the many inevitabilities in our trading world is that we’ll never pick the exact bottom and top of any market move. In the perfect situation (that exists in our ‘mind’s eye’) we’d drill right down to a five minute chart to pinpoint the exact moment market sentiment turns and would ride that momentum swing trend trade right up until it loses energy. Sadly and as many of us find to our cost, this perfect scenario never plays out the way we’d expect once we move from demo trading to live trading. The best we’ll accomplish is to take a significant chunk out of the market move, it’ll be more luck than judgment to pick the exact top and bottom of any movement therefore we’d be wasting time and energy in attempting to find it.

Demo trading

When we talk with other traders either face to face, or more likely across the internet through blogs and forums, it becomes increasingly obvious that the facility provided by brokers in the form of demo accounts are totally abused. They’re (demo accounts) not there to risk it all and to try out crazy market theories, demo accounts exist to allow traders to calmly, methodically and forensically try out the trading methods and overall plans they’ve loosely begun to create in their trading plans and journals. If we’re going to risk 1% of the account when live then why risk ten percent in demo? If we’re going to follow our loose plan to the letter in demo then why deviate from it based on a hunch? Demo trading should encourage us to develop sound trading habits to then be able to replicate perfectly that demo method into the real market. In doing so our move up to real trading should be (in theory) effortless.

 Trading plan

It’s a recurring theme in our many columns but if we’re going to lose the fear of holding onto trades for too long, or bailing from them too early then we have to simply adhere to the rules that we’ve deeply embedded into our psyche through our trading plan. If in that plan we decide that we’ll enter when our HPSU (high probability set up) triggers at a certain point and exit when we receive the signals to do so then we must understand that deviating from that process can severely impact on our probability based trading methodology and therefore and inevitably our bottom line.

Plan our trades and trade our plan

If we plan our trades and trade our plan there should be no reason why we’ll ever hold onto losers for too long or bail on our winners too early. We simply have to recognise that it’s not us trading the plan and that the plan actually trades itself. Visualising ourselves as pilots or part of a robotic process could help. It’s not then us actually trading it’s a series of instructions laid down by a pre-determined plan that’ll never be violated.

Trading smaller lots until sweaty palms disappear

It is an obvious solution to our inclination to stopping out our own trades, before they’ve reached the point on our plan where we should be stopping them out, but dialling down the lot size, until we’re no longer fretting on each and every outcome, can be an obvious solution to many of our fears. Many brokers operate micro accounts were your lot size can be a fraction of a full lot. Not only can this provide an excellent bridge in between demo and live trading it can also allow us to gauge our own tolerance to risk. Very few of us enter our trading world capitalised as we need to be in order to develop a consistent income from trading from day one and the temptation to take on excessive risk to grow the account, to match the outrageous claims we’ve seen listed on forums and blogs, can prove difficult to ignore. However, micro accounts are incredibly helpful if used correctly.

 Could coding help?

Once we’ve moved through the gears of demo trading to live trading and we’re now entirely comfortable with our method and our overall strategy there is no reason why we couldn’t begin the next stage on our evolutionary trader journey and commit all the ingredients of our plan into coding on, for example, the MetaTrader platform. We can only do this when we are fully confident and comfortable with our strategy and know that it’s a winning strategy and that we have the raw evidence in front of us in the form of positive results to prove it to ourselves. As we’ve stated in this column previously coding won’t make a bad strategy good, likewise coding won’t improve profitability that much. What it can do, however, is to remove the need for manual intervention and help to remove any destructive emotional elements to our trading.
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