Why cutting the lose early and holding the profit run is crucial?

No one has ever bought a financial asset which he or she believed will depreciate in value. However this is how the market works and we will be wrong occasionally. You will sell and the currency pair will shoot up or vice versa. It is not the best feeling in the world but you should learn how to make rational driven decisions rather than emotional ones.

There is no room for emotions, feelings and hope in the world of the professional trader.

You have a plan and you follow it. Whether you like it or not, you should follow it. It is interesting how we are all here to make money but when you mix greed with fear, something unexplainable arises. Very big part of the traders and investors i know would cut their profits earlier than they are supposed to. If this is according to your plan and strategy – ok, fine but if your strategy tells you to stick to X level you should.

There are actually 3 categories of traders, the way i see it, when it comes to letting losses run, cutting profits early:

1. 1. Beginner traders – they don’t have money management or simply don’t follow it. They allow losses to exceed allowed risk and also collect profits as soon as they are in positive grounds. This is the worst. They do both things you shouldn’t do, which pushes them towards failure very very quickly.
   2. The average trader –  the average trader has the system, the risk and money management in place. He has been around for some time, he did get burned a few times, learned the lesson and it is all clear in his head. He knows what to do and how to do it, however he fails to do it. Mainly due to psychological factors and barriers. If you didn’t put effort to train your brain on how to handle everything a trader is going through – you should. However the average trader will usually hold the initial stop losses he had in place BUT he will cut his profits earlier. He won the battle with fear when it comes to losses. He is not afraid to lose anymore because he knows the strategy works, statistics are on his side and as long as he follows it he will make money in the long run. However he doesn’t have the patience to hold the winning positions for as long as needed to collect full amount he is supposed to. The amount that according to statistics will make him money at the end of the month. This is the fear of missing to collect the profit and than the market reverses on you.QUICK TIP: Move your stop loss to break even once the price is at risk:reward of 1:1 (floating). You may also choose to collect partial profits here. This might “choke” some trades but will give you a security and tranquility. Test and see if it works for you and your method of trading. See how often price will re-test your entry level to kick you out of the trade at break even and then continue in the original direction. If that happens very often then moving the Stop Loss to Break Even at R:R of 1:1 may not be suitable for your strategy.
   3. The pro trader – he or she has come to the realization that the closer you are to a robot, the better and more profitable you will be. Fear and greed are conquered to great extend (even though you might still be fighting with these emotions on daily basis, you know how to control them). Experience comes into play. The hours spent in front of the monitor, looking at the charts, knowing more or less how the market behaves and moves is a huge benefit. The pro trader is not afraid to take a loss or to miss a target. The pro trader knows that if he does what he did when he was back-testing his strategy, he will be fine. That back test and statistics are the only two reasons any strategy in the world has been released and traded with real money.

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