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How to brake bad habit: Cut short on looser & let winner run
I'm just starting to be profitable ( at least for the last 2 weeks) but I still have bad habits that I need to resolve. One that is causing problem is my tendency to cut short on winning trade and let the looser reach the stop loss. As strange as it is, I will make sure that I don't loose my 25$ in profit, but I will let my full 100$ stop loss target to be reach
Today, I managed to be profitable ( +478$) but I may had triple that amount if did not had that miserable habit On my last trade, I manage to get mt stop loss at brake even, but soon after, price was cumming toward it, I close the trade with a tiny profit. Naturally, price did reach my profit target, but without me.
Martin have you considered using a bigger timeframe like a 30 minute chart to manage your trades? It helps tremendously. I use a faster interval to get in but to manage my trade i use a 30 minute interval. Check it out and see if it helps. Bonne chance camarade.
I don't think that looser reaching a stop is a bad habit. I think it's actually very good. You limit your loss to the amount you were ok with before entering the trade. Maybe the loss is too big emotionally to handle (need to reduce size)?
Regarding profit cut too short, maybe you could have 2 (or more) targets. One close and one further. Reaching the first one should make you feel good as some profits are locked and the trade at worst should now be break even...
For some, maybe many, that is a question that has the potential to linger. The "handcuffs" was silly, but also intended to be sarcastically correct. How do you stop moving your stop, or hitting "close" at a small profit? You just stop. No one forced your hand but you.
The psychology behind it I suspect is complex, survival instinct or "fight or flight". The base is fear. Fear of giving up what you have on the screen in the case of taking profits early.
You could try just setting a profit target and a stop loss and considering your job done. That was your best guess and roll with it. Pretend that is all you have control over. Trading will become a less active role and the pace will slow down considerably.
You could download a stop indicator, like Super Trend.
Or have a rule of a trailing 3-bar (or 2 or 1 or 4) stop and let the bars decide.
Use drawing tools to make wave projections and draw them on your charts, decide maximum distances you feel would make whatever pattern you were anticipating invalid, and set your stop there instead of using a vanilla "15 tick stop 30 tick profit" (or whatever numbers in that fill-in-the-blanks equation).
You could try meditation to calm your mind during trading. Or sound files that play certain wavelength sounds to put you in various brainwave states. (I have actually done both).
Ultimately it has to fit your beliefs, your risk tolerance, your psychology, your experience, your level of confidence in the trade, and the reason you put the trade on to start with.
Don't beat yourself up over it. Trading is a performance art, as hard as mastering a foreign language or a musical instrument. Whatever you find yourself doing, it's done for a learned reason, whether or not you understand it later.
The solution is practice -- LOTS of it, with smaller $ amounts, varied timeframes and in simulator. Your goal is to have better instincts and reflexes than 51% of other market participants. (Why not just go for 80%.)
I can't say that your take-profits-and-run and give-trades-room-to-run combination is bad; that's an opinion some may have, but who knows for sure... There are no honest-to-god gurus in this business; that's part of its appeal.
Grow, over time, the set of experiential datapoints your mind has to work with.
P.S.: I read somewhere the advice that one should grow a simulator account three-fold, three times before going real. If you're in a rush to leave the simulator, you're probably going to make an avoidable mistake. Just my opinion.
Years ago I heard the phrase "eat like a bird and shit like an elephant".
Have a pre-plan and stick by it. I do agree that taking a stop loss is a good thing. Often people loose more then they planed and then have a mountain to claim. Keep away from that and you will be good.
I have found that price often retraces up and down, to take out trailing stops. You can try using multiple timeframes, and choose a higher timeframe to set your stop behind the previous bar's high or low. You do need to let the trade hit your target and give it wiggle room to move, sometimes this will take minutes to happen.
One other technique is not to enter on the first touch of the price, but to let it come back and then enter, this is called a test. Usually the price will not hit the same high or low. Watch the market you are in and notice how it behaves. Practice, practice and understand their will be both profits and losses. Overtime, as you develop this skill, you will filter out low probability trades, and have more winning trades.