"How can I stop holding my losers too long and selling my winners too quickly?"

Here's an email I received from Omar T. (name used with permission, edited lightly for clarity):

Omar T:

I seem to hold my losers and sell my winners too quickly. Sometimes I look back and I could have made a lot more profit, or could’ve lost if I held the trade longer.

I just feel like I understand the market and reading price action, but I seem to find myself chasing into a trade.

It’s a hard habit to break. I know I’ll never catch the bottom or top of every trade, but I’d like to have better entry points. So that’s one thing I’m working on changing. I’m so fascinated with the stock market, and I’ve learned a lot during this journey. I’m just trying to keep positive and not give up.

Dave:

This is a classic situation for traders just starting.

You have a decent plan for getting into trades, but then expect some magical intuition to eventually form so you can manage each trade to its optimal conclusion.

When trying to "understand the market and read price action," most traders look at way too much data and try to draw conclusions in real-time.

Add to that the psychology of money and the bouncing P&L on your trading platform, and you have a recipe for mediocrity.

I'm convinced humans are hard-wired to make the least profitable decision when they're in a trade without a well-defined plan.

And a plan is not hoping to "get better at reading price action."

Step back and think about how you could create the confidence to make the right decision during a trade.

It's impossible to formulate a plan that will be optimal for every specific trade you're in.

But you can create a plan that's optimal across similar trades in aggregate.

And you won't care about "reading the tea leaves" to decide how to exit a trade.

Why? Because any individual trade won't matter that much.

Any given trade might look like you completely bungled it, but that's irrelevant.

Confidence comes from knowing you're doing the right thing across a large number of trades.

When you start answering that question, you can see a path to trading with larger and larger size over time.

Without that, you'll never move beyond the cycle of trading a strategy, having a drawdown, getting frustrated, and moving on to another strategy.

Thanks for the question, Omar!

-Dave

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