Thursday, January 18, 2018

5 Ways to Let Your Winners Run | Trading Psychology

Today’s Trading Psychology question of the day…

“JJ, I need some serious help with letting my winners run.  I know the saying “cut your losses quick and let your winners run” but that’s REALLY hard!  I’m always getting out too early and I hate watching these markets run without me just because I couldn’t follow my plan, I need your help!”

In today’s psychology lesson, I’m going to give you a strategy with five (5) ways to let your winning trades run, so you can squeeze every last penny out of those profitable trades.

But before I go into today’s lesson, I need to remind you that this psychology lesson is the most recent in a series of videos that I publish every week, and these videos build on the topics we’ve already discussed, so if this is the first video you’re watching, you might want to go back and start from the beginning to get the most value out of these lessons. 

I’ll leave at the top of the video, and ill stick a link in the description…

Here’s the link to watch from the beginning

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Ok, now that we got that out of the way… let’s get into today’s lesson.

The topic for today is… five ways to let those winning trades run!

You know what… You can always spot an experienced trader in the way they take losses.  They have a clearly-defined exit price on their trades, and they have no problem taking the loss because they know it’s part of the business, and it allows them to keep trading for the next winner.

Professional traders seem to have no trouble taking small losses…

The hard part for most traders, is holding onto winners, and I can tell you from personal experience I would rather take a loss than watch a winning trade run without me… it’s so painful and it makes you feel like a fool, doesn’t it?

Holding onto a winning trade until it reaches its full potential takes experience, discipline, and a lot of guts.

It’s really the psychology of it all…

One of the most toxic sayings among traders is…“You’re never wrong taking profit”

This is one of the most unproductive and damaging sayings in the trading business because in all reality, if you cut those trades early, your stops become relatively greater, and you will reinforce the fear of those losses in the future… because that’s usually why you’re cutting trades early, you’re scared that it will come back and take you out for a loss, right?

Traders often confuse managing their trades with managing their emotions about the trade.  They are completely different, and those emotions are what sabotage our trading, such as cutting winners too quickly.

When you find yourself in a winning trade, it’s easy to ask yourself… “would you rather make an almost guaranteed $250 profit, or a $500 profit 60% of the time”…

Most people will go for the certainty of the smaller profit…even though they will earn more if they just allowed the trade to work to it’s full potential with less frequency.

Taking profit too quickly can be deadly to a new trader because it doesn’t properly offset your losses, which leads to drawdowns on your account, and more importantly, cutting your winners too early prevents you from truly developing confidence and trust in your set-ups.

In order to have confidence in your target, you need to have trust in your set-ups.  Every time you cut your winners early you’re robing yourself of the opportunity to build that trust in your trading strategy.

The good news is, every time you hold your trade to its target (or stop) you build a little more confidence in your strategy, more confidence in your set-up, and more confidence in yourself. 

If you SEE that your strategy works to its final target, you trust your strategy a little bit more, then you will find it a lot easier to hold the trade to the intended target on the next trade.

In other words, you gain MORE by committing to your trade and letting it play out (win or lose) than you do by cutting the trade early because you couldn’t handle the uncertainty of the situation.

The most important thing is giving your trade the time and space it needs to work for you.  You did all this work to get into the trade, don’t let some uncertainty ruin all of that. 

I’m not talking about using a wide stop-loss here either… you can use a small 10-tick stop and still give it the time and the space to work in your favor.  If it stops you out, update your journal, move onto the next trade, and if it goes in your direction, stick with it until it fills the target!

Each time you hold the trade to its target (or stop) it gets a LOT easier on the next trade.

So, you know why you shouldn’t cut those winners early, now let’s talk about how to do it correctly.

Here are five (5) ways to start letting those winners run:

2.      Using a Predefined target (so it’s automated)
3.      Have a plan for the emotions
4.      Risk Percentage (don’t cut your winners early because you’re scared of another loss)
5.      Leave a small portion to run (start small and just leave a single contract to run)

(1) Supporting Data:

First, let’s talk about supporting data…

I’ve talked a lot about the importance of using a battle-tested trading strategy.  In my previous videos I recommended that you trade at least 100 times in simulation before risking any real money.

Doing this, and keeping track of your results, will give you the data you need to be able to look back and know that when you take a specific pattern, you get a specific result over a large sample of trades.

Bottom line…It’s going to be hard for you to let your winners run if you have limited experience with that specific trade set-up.  It’s a lot easier to hold a winner when you know from your record-keeping DATA that your trade set-up will reach its target, let’s say, 65% of the time.

Remember, we’re in the business of pattern-recognition and probabilities, so if you’re not using mechanical rules and keeping records of each trade… you’ll never be able to look back at your results and know anything more than what the last trade did. 

The lesson on this… start keeping your trading journal, and document every single trade… and remember, you need to be using the SAME entry and exit rules on each trade if that data is going to be useful to you.

(2) Predefined Targets and Stops:

Now let’s talk about using predefined stops and targets.

I assumed that everyone knew that this was important, but I keep meeting new traders who don’t know where their stop and targets will be before they enter their next trade?

Remember, when you enter a new trade and you have money on the line with an uncertain outcome, your mind becomes your worst enemy.  You’re going to wind up letting your losses run and cutting your winners early.

In my experience, the easiest way to let your winners run is to have your trading software place your target automatically when you enter a trade, and if your set-up doesn’t allow for this forward planning, then you need to develop the discipline to place that stop, place that target, and let the trade work.

Again, if you’re using a battle-tested trading strategy then you should have the data to support the stop and target placement, and the confidence to let the trade work.

Take the emotion out of the trade and use predefined stops and targets... and leave the room if you need to!  Whatever it takes!

(3) Have a Plan for the Emotions:

That leads me into the next piece of this strategy… plan for the emotions, so you’re ready to combat the feeling of fear and greed.

I would suggest, as part of your morning routine, as you define your daily goal, review your patterns, review your rules, take a moment to remind yourself that you’re going to be experiencing some stress, emotion, a little fear, a little greed… and tell yourself… your job is to ignore that and just trade your plan.

I always tell myself… “My strategy is tested, I know my rules, my stop is there to protect me, this is a game of probabilities. Your job today is execute the game plan.”

So, tomorrow morning, give yourself a pep-talk, tell yourself you’re going to battle with this situation and you can get through it… and every day that you push through this you’re going to make it easier next time, and before long you will have beat this problem.

(4) Risk Percentage:

Next up… let’s talk about risk percentage… because the amount of risk you’re taking on each trade is going to make this easier if you do it correctly.

As I said earlier… the root of the problem with cutting winners too early is the fear of loss

We’ve all seen a good trade go a few ticks from our target and then crash back down and take us out for a loss… we usually say to ourselves… “if only I would have taken that profit sooner!” 

Next time, you probably will, and that trade will go to your final target… without you!

First, and I’ve said this many times before, stop risking such a big percentage of your account on each trade.

I know these fools on YouTube like to brag about risking 50% of their account on a single penny stock trade, whatever, but that’s how you kill your trade account.  If you lose 50% of your account, it takes a 100% return on the capital you have left to make that money back, think of it that way.

I recommend that you risk less than 5% of your account, I always shoot for 3% with my new clients, and I tell them the goal is to grow the account and keep lowering the risk percentage until you’re at 1% risk.

I know this sounds conservative because it is… this is not a get rich quick business, this is a “invest your time up front for fast money in the future.”  If you go broke before you can learn enough about the markets, you’re useless as a trader.

Risking less than 5% of your account should silence that little voice in your head that tells you to be afraid of a loss…. so, risk less, take the stress out of the trade, and that will make easier to stay patient and let the winners run.

(5) Start Small with a Runner:

Now let’s wrap it all together…

You’re trading a battle-tested strategy, you’ve kept good records of your previous trades and you know you have an edge to achieve that larger target, you’re using a predefined stop and target to automate the process, and you’re risking less than 5% of your account… you’re doing everything possible to eliminate that little voice in your head that’s telling you to “take the money and run”… now let’s start pushing yourself out of your comfort zone a little.

One trick I learned from a mentor of mine was to start leaving a very small piece of the position on as a large runner.

In other words, start making it a habit of leaving 1-contract, or 1-share, or 1-lot open as a runner, no matter what your predefined target was going to be.

So, if you’re in the habit of trading with targets at +10 and then the next support and resistance level, now I want you to add one more target, which is the big runner, and place that runner around the size of the average daily range for the market you’re trading.

With that in place, now give yourself 90 days and keep track of your results. 

The goal with this is to give yourself a chance to actually SEE that those runners make up a big chunk of your gains over the next 90 days.  Those tiny 1-contract runners will most likely make more money for you than you think!

We’ve covered a LOT in this psychology lesson, so let’s do a quick recap.

Today we talked about one of the most common problems we face as traders… cutting our winners too early...

I gave you five (5) ways to start letting those winners run:

1.      Use Supporting Data (so you know you have an edge)
2.      Using a Predefined target (so it’s automated)
3.      Have a plan for the emotions (be ready!)
4.      Risk Percentage (don’t cut your winners early because you’re scared of another loss)
5.      Leave a small portion to run (start small and just leave a single contract to run to the average daily range for the market you’re trading.

Wrapping things up… I hope you found a ton of value in today’s trading psychology lesson…

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my next psychology video…

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend.

And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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1 comment:

  1. Hey, Im from Brazil and I love your tips!!!!


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