Let Your Winners Ride:
Okay, so today we are going to talk a little bit about letting your winners run. There’s another section, cut your losses, which goes in hand with this. But… why would you want to let your winners run? Well, the main reason is to capture large moves that are in your favor. Another reason is that the best time to stay in a trade is when you’re winning, not when you’re losing. Also, psychologically it’s a lot easier on you to be in a winning trade. So, the longer you’re in a winning trades, the better off it is for you psychologically. The longer you are in the losing trades, the worse it is for you psychologically.
It’s actually a little bit against human nature, it seems to be a little bit against human nature to let your winners run. A lot of people get involved in trades, get involved in a losing trade and they want to just get even. And they already made their decision of getting in the trade so they don’t really want to be wrong. So, they keep those trades, they stay in those trades that are losing. You basically want to do the opposite of that, which is if your trade starts out as a losing trade…cut it off pretty quickly. But if it’s a winning trade, just stay in it.
And you can also do a bunch of things to allow you to stay in it. One thing is you can put a stop in when you first get in the trade and then move it up to break even when you’re trade gets ahead a reasonable amount. You can also attach what’s called a trailing stop, which trails up as your winnings go up. So, let’s say your goal is to make a point, let’s say you get up 30 cents, well…wherever your stop started at it will now be 30 cents higher than where you started at. So, it will trail up behind your price as your price moves up. When your price moves down, your risk is 30 cents less than what it started at with a trailing stop (if you had gained 30 cents from the beginning of the trade entry).
So, there’s a lot of different ways to think about letting your winners run. You can let them run all day. You can let them run to a certain target. That’s actually discretionary and up to you, but the main concept is that you want to get into the habit of letting your winners run and cutting your losses short. Another aspect of letting winners run, or an advantage of letting winners run is that even though you make your best guess and you do all your research and you pick your best entry point…you never really know if you’re going to be right or wrong. So, what letting your winners run does is allows you to take advantage of the times that you’re right. And if you cut your losses, you mitigate the losses on the times that you’re wrong.