Letting Losers Run...Cutting Winners Short

[ibifzjpd64]

Why is it so much easier to let those losers run?

Why is it "normal" for traders to cut a winer short?

Look back through your short term trades and try to determine what the actual risk to reward was prior to the trade, and what you actually accepted in reality.

[HermanWait]

Not being greedy enough, sounds odd but think about it as it relates to the topic question. Letting the loser run because if you can just can get enough to cover the commission it'll be okay or something along those lines and cutting the winner short because of fear. So, in either case not enough greed and definitely not having a plan or not sticking to it.

[HaroldDito]

Been thinking about setting bracketed stops [up and down] on a stock position based on probabilities of the stop price occurring and the profit or loss involved. Figure this is a volatility-based model with a trend and/or 'TA indicator' bias developed from regression analysis and folded in to the probabilities.

The key would be to keep score and adjust the stop level guidelines accordingly. The obvious guideline is that your stop level brackets should not be set such that the odds are against your making a profit over a number of trades.

Building the data to back-test this model, and then to simulate in real time, will take a while; but I figure it's a worthwhile pursuit. Maybe Valentine's Day for some prelim results?

[iduvoicaage]

Ego, and Self Doubt.
In the first case, ego. I believed in this stock at X, so at X-Y I wait for it to go back up otherwise I admit I was wrong.
Solution, I set an absolute tolerance for loss, say 8% and I sell and move on. Then I look to see what occurred that I didn't see coming.

In the second case, self doubt. I better get out before it goes down, like the other ones did.
Solution, I set a price at which I will begin taking some off the table, or where I will institute a trailing stop.

I am not so sure I agree that traders cut winners short as much as I think it's more of a "special case" of the first case. The price comes off a high and begins going down, and we fall into the same trap as before and cut into our profits.

[admin]

I remember some time ago sitting on 1500 shares QCOM towards the end of the day and watching my target come and then slowly go. Got greedy with the target and thought I could get a little more. Then watching it slide through break-even and lower. Then, watching a couple laggy-assed indicators convince me to convince myself to hang on a little longer and lower my mental stop. The end of day rally was not panning out, so I then convinced myself that I should see a nice gap on the next day's open. Had a hard time sleeping that night.

By now I have broken key aspects of my own rules: 1) sell at the stop and move on. 2) once the profit target is hit - secure it. 3) do not hold day trades overnight - EVER! 4) do not allow yourself to be convinced of something your mind wants desperately to see.