Featured Article

Allowing Winners to Run

woodyjohnson
Dr. Woody Johnson
Instructor

Sally felt like she was in the zone.  Her plan had identified a demand zone on the 60 minute ES E-mini chart and the price action had pulled back as it was about to enter it.  She had placed a limit order on the 5 minute chart to go long in the zone and bracketed her order so as to place a stop just below the demand zone when she was filled.  Sally prepared for the trade and she had determined that it was high probability with a good chance of hitting her target.  The trade got filled and stalled for a moment before the price action began to drop.  As it got close to her stop, Sally took a deep breath and thought, “It’s going to take me out, I can deal with that, my stop is working.”  Now, the interesting part happened when the price action took a turn and began to move up.  As soon as it went into the green, Sally found herself to be very anxious and fearful.  She panicked as she thought, “Oh boy, this has a profit and I’d better grab it because I need all the profits I can get before it might go back down and I’ll be left with a loss again.”  The urge to take the small profit was too much for her to manage.  Sally prematurely exited the trade and didn’t allow her winner to run.  She went against her plan.  She second guessed herself.  Right after she took herself out of the trade, the price action continued to rise and soon it hit what would have been her target.  She found herself feeling dejected, depressed and angry because she had “caved” again to anxiety and the fear of letting the “green” and what she was telling herself about it, distort her judgment and distract her focus.  She had done what she had specifically told herself that she would not do … again.

Prematurely exiting a trade and not allowing a winner to run is a common problem.  One of the things that you’ll want to do when you notice this issue is to note it in your trade log/journal.  Documenting the trade data helps you to uncover the mechanical triggers that are prompting the exit.  For example, in Sally’s case, it wasn’t the price action’s threat of hitting her stop; which is an issue for many who move stops in an effort to avoid the loss; it was the movement of the price going in her favor that initiated the anxiety and fear that the profit would be lost if the price action suddenly reversed and then hit the stop loss.  Gaining the mechanical specifics will take you closer to getting a handle on a solution.  Additionally, you want to document your internal data; that is, what you are telling yourself as you are about to take yourself out of the trade.  In Sally’s case, she said, “Oh boy, this has a profit and I’d better grab it because I need all the profits I can get before it might go back down and I’ll be left with a loss again.”  This thought is what prompted the anxiety and fear.  In other words, what Sally told herself was masking a deeper limiting belief that a small profit meant that she was a “good” trader and that she must hang on to that at all costs…even the cost of hitting her target.  The limiting belief was connected to her self-esteem and it became more important to hang on to this small profit because of what it meant than to risk it by letting the winner run.  Finding out the deeper core issues is one of the important byproducts of documenting your internal data.  You can’t confront this type of issue if you aren’t aware of what is motivating the behavior.  See, the thought of “I’ve got to keep this profit” is often connected to an underlying belief that profits, however small, will validate you as a trader despite the fact that it is keeping you from an even larger profit and a better result.  This underlying belief could be prompted by another deeper limiting belief that your profits are limited and you must take them whenever you can, which is also a belief in scarcity. So, the anxiety and fear continues to get triggered as your unconscious conversations around what this small profit means to you are circulating.  As you unearth more and more of the limiting beliefs that are prompting negative emotions which drive bad behaviors, you are putting yourself in a position to be proactive in dealing with them and you are being preemptive in decreasing them as a factor in your behavior.

Now that you have pulled back the layers of the problematic onion by using your journal/log process, it’s time for you to address the negative thought stream head on.  Interrupt the pattern once you recognize it’s happening by stopping the process in its tracks.  As soon as you feel the tension, anxiety, butterfly stomach, etc.; stop and take several deep breaths.  Count to ten or higher.  Change your position by standing up or doing something different such as a brief exercise.  This will take you out of the pattern, bring you back to the moment and help you to focus on what matters most in the trade.  Then ask yourself, “What must I be telling myself or believing to feel this tension, anxiety, butterfly stomach?  What is really happening to the trade?  What is in the interests of my A-Game right now?”  At that point you are in a position of strength.  You have interrupted the pattern, identified what is driving the desire to exit the trade, focused your attention on what matters most, and you can then do the right thing.  This is not a panacea, you must practice this procedure.  It’s like any important behavior you want to install as a habit; you must develop the capacity for strength and endurance by doing it repeatedly and training yourself.

It’s imperative that you focus on bringing and keeping your A-Game at your trading platform.  This begins with becoming aware of what will take you off course and documenting the mechanical and internal data.  When you have identified the underlying issues, then become proactive and preemptive in dealing with them by changing the negative thinking and interrupting the patterns one trade at time. Letting your winners run is an important component of being consistently successful and getting the results that you want.  Remember, you can’t change what you can’t face, and you can’t face what you don’t know.

Happy Trading.

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.