Why traders are unable to cut their trading losses?

By | March 8, 2013

Nifty has been rallying from past 1 week, 260 points in 5 days. Most of traders were bearish were holding shorts. With such sudden spurt many traders are caught of wrong foot and now finding it difficult to cut their trading looses and go with the main trend.

The fear most of traders have What if as soon as i cut down Nifty/Stock reverse. With such inhibition in mind they keep on holding the and at worst keep averaging their losing trades. The end result market forces them to cut their positions when they are unable to fulfill the margin calls.

Most of traders are aware of this age old adage ” A trader you should cut your losses short and let your winners run.“Still most of traders work against this and keep blowing off their account.

What Stops traders from adhering to this adage and protecting them from trading loss ?

 

The ego and subconscious are the main reason why traders are unable to cut losses .If you are unwilling to accept you are wrong and move on it is all too easy to not keep your losses small, but alas! its not true in trading life. Our Ego says How can i be wrong ? We will look for reason which justify the situation and keep fighting the situation till it does a permanent damage to our trading account.

In real life if you are not willing to use an emotional stop point you can also let situations run far further than ideal for your happiness.

Take as an example a bad situation with a friend or family member that has happened in the past where neither is willing to accept that they are wrong.  At a certain point it’s often best to just take your loss.  Accept that what occurred occurred and that you are 100% the source of your own reality.  Draw a line in the sand and start afresh.

The great thing in life is that if we accept that we are completely and utterly responsible for everything that happens to us we have a new opportunity every minute to begin again.  To put another trade on and get in line with the major trend.

Just like with trading sometimes you need to put several trades on that hit your emotional stop, take the hit, learn from it – and re-enter.  The more comfortable you become with not having to be right the more that things start to flow and the more happiness you create.

Of course sometimes you have to have a more significant stop in place like a max-loss stop emotionally as well.  If you have in good faith taken your emotional stop, re-entered and the other person is so heavily invested in their position sometimes it’s best to stop taking the losses.

Realise that you don’t always have to be in the market; that being in cash is an option.  You can do this and spend the time building your emotional capital and in the future have an attempt at trading that troubling market again (if you must or you can simply look for a new market to trade).  You will have improved in that ‘cash’ period and perhaps the market conditions will have also changed when you chose to re-enter.

It all starts with getting rid of the need to be right and thus unable to accept your ability to get things wrong, learning all the time and accepting complete responsibility for where you are in life.

Follow on Facebook during Market Hours: http://www.facebook.com/pages/Brameshs-Tech/140117182685863

Leave a Reply