0IMPORTANT LEARNING:
We(traders) all have made this mistake or may have heard about. We find a good setup and after a long wait and watch when we take the position as per setup, most of us exit very early and regret later for not waiting longer.
WHY WE DO THIS?
The main reason for vulnerability to this common mistake is our fear of losing profit. But again, how we reached here? Initially, we try to hold it in profit but gradually we learn that on many occasions our stop loss gets hit. So, there comes frustration because just a few hrs ago I was in good profit, but all of a sudden ate stop loss which was at cost after trailing. Some are more vulnerable. They let losses to run freely and are at more risk. It happens many times, and gradually our fear takes over our trading plan once our trade is in profit which is NOT TO LOSE PROFIT.
On the contrary, Initially, most of us come with risk management, but like our experience of losing profit, we also experience from loss to sudden profit. We experience that many times after hitting stop loss our expected target hitting. This experience leads us vulnerable to the second mistake, REMOVE STOP LOSS.
And this is how most of the traders end up making two blunders:
1) BOOK EARLY WHILE IN PROFIT, AND
2) WAIT IN LOSS TILL IT COMES IN PROFIT
And these two blunders are the culprits which give us a loss in the long journey of trading.
WHAT IS THE SOLUTION?
The solution is straightforward but very difficult to follow. Just do the opposite. Let run profit and exit early while in the loss.
DOES IT GUARANTEE PROFIT?
Yes, you will be in profit in long term journey of trading. Let me explain it in detail. Following the above strategy, we will end up most of the time with losing trades, but the successful ones are going to cover all losses, and we will be in net profit.
EXAMPLE:
Suppose you trade ten times, and as per strategy, you put RISK REWARD ratio at 1:3. Suppose your seven trades are unsuccessful and three trades are successful. You still will be in profit because as per risk-reward ratio you lost INR 7(7*1) and earned INR 9(3*3). INR 2 is your net profit after deducting a loss from profit.
Above example is a hypothetical one. One may argue that we won't be getting profit loss exactly as per risk-reward. Very true. Sometime we will end in between or out of range. My advice is to let the profit range increase and loss range to be limited to INR 1 here. This way, you may get an even higher profit, but you won't lose much while losing.
But it's not an easy task unless you change your mindset up. Most of us are profit-oriented. NO, we have to change that approach, and we have to be risk-oriented. Because once you learn managing your risk, profit automatically will run down.
CONCLUSION:
BECOME RISK ORIENTED TRADER, NOT PROFIT ORIENTED.
