Rather annoyingly this is something that I regularly talk about when doing presentations and webinars but on more than one occasion this year I didn’t implement. It is easy when trading, especially if it is your main source of income, to focus too hard on your daily P&L. I learnt, in hindsight, that if I had made a loss on a trade - or if my daily/weekly P&L was in the red - that I would cut profitable positions before they reached target, to try and balance out my losses or to make a profit for a certain timeframe.
While taking a profit is not wrong, the reason that I cut these positions certainly was wrong as I did not let my trade play out. When you enter a trade, you have defined prices – entry, stop-loss and target – and if you change one of these then the others are wrong, as all three prices are inter-related.
For example, if your minimum risk/reward ratio is 1:2 and by exiting a trade early you cut this ratio down to 1:1, your overall chance of making trading a profitable, long-term, business is cut back drastically. The reason you are in a trade is that you fully believe in it and once you are in the position you must back your view.
In 2020 I am going to re-focus on letting my profits run to target and not scalping for short-term profit in a longer-term trade. In short, I’m going to back myself and the reason/s I am in a trade – if I’m not confident about being in a trade, or I am worried about my current P&L, I’ll re-set before I put another trade on.
You can contact the author at nicholas.cawley@ig.com or via Twitter @nickcawley1.
