One of the primary reasons that the vast majority of traders fail is that they are constantly looking to avoid pain.
But what do I mean by ‘avoiding pain’?
You may remember that I have spoken a lot in my previous articles about cutting losses early and letting winning trades run and this is where the ‘pain’ element comes in.
We know that cutting our losing trades early is key to successful trading. After all, we know that we will win some and lose some, but it’s not whether you win or lose that matters. What’s important is how much you win when you win and how much you lose when you lose, that counts.
If you have a 50% strike rate, you can still win handsomely each month if your wins are bigger than your losses. Simple maths.
So let’s look at cutting losses early.
How often do you sit on losing trades, watching the red get bigger thinking to yourself, “I’m sure there is a goal coming, just a few more minutes” or “These teams always score, I will give it until half time” etc etc.
Cutting losers early is something that the vast majority of traders struggle with. However, it’s vital that you do this consistently if you want to be profitable long-term.
It’s a fact that the average trader finds it easier to add to a losing position, but can’t wait to take profits as soon as they see a green screen. Over time this can be seriously detrimental to your profit and loss.
But why is this?
It all comes down to our ‘primitive’ reptile brain, our subconscious minds, and they way we are wired.
You see, your subconscious ‘reptile’ brain will always look to prevent you from feeling pain and will take action (or at least recommendations) to help you avoid that.
These ‘recommendations’ will then be processed by your conscious mind and you will then (in most cases) take the recommended action suggested to you.
This is commonly referred to as our ‘fight or flight response’ and comes from our ancient ancestors who had to make regular decisions on dangerous or stressful events and how to manage them, such as being chased by dinosaurs.
Our subconscious mind is always looking to protect us. When faced with a loss, the subconscious mind will naturally ‘recommend’ that you add to your position to avoid the pain of losing. When in a winning position, it will be screaming at you to “take the profit” as it’s going to feel good after all.
However, in trading this doesn’t help us one little bit as what we need to do most is often the opposite of what our subconscious ‘primitive’ mind is telling us.
After all, we’re not running from T-Rex, we are simply trading football matches…
So what pain is our subconscious mind trying to help us avoid when trading?
- The PAIN of losing money.
- The PAIN of having to admit we were wrong.
And it’s one or both of these that prevent losing traders from cutting their losses when they know they should.
I’ve been there. I also experience it, even now, after many years of trading. It bloody hurts to admit you were wrong. I mean, on paper, there should have been five goals but the match ends 0-0 with both sets of players looking like they would rather be somewhere else. Very frustrating.
Deep down you want to take those losses but your subconscious says “You’re going to lose money if you bail out now. You will be wrong AGAIN.”
Your subconscious mind will then do everything it can to get you to avoid the pain.
Fact is, if your subconscious gets the better of you, and you keep letting those losing trades run, your losses will outweigh your profits on winning trades meaning you will be a net loser. Sound familiar?
You see, it’s not the trades you take or even the strategies you use. I dare so most strategies can be winners, at least half the time. NO, it’s YOU that is the problem and the in-play trading decisions you make which are driven by your primitive brain.
You have to overcome this if you want to be a winning trader. You have to do what the 85% are unable to do. Control your primitive mind.
This won’t come easy though. It takes practice for sure.
I read a quote recently which said something like, “If what you are doing makes you feel uncomfortable, it’s most likely the right thing to do.”
I guess that’s a bit like what they say about going outside of your comfort zone if you want to see change.
And here’s one of my own to remember. “If you want to change the fruits, you have to change the roots.”
What you need to do to change your fortunes
Simply put, you have to STOP doing what the 85% of losing traders do, which is to keep trying to avoid pain. Become friends with pain and that losing feeling.
What you need to do is the complete opposite of what the majority do, which is to fail to accept that they were wrong and cut their losses early.
In fact, even the most experienced day traders will tell you that the key to success is to ADD to your winning positions, NOT to your losing positions.
Ride your winners for longer and cut those losers early.
If you want to be successful in this game, you simply MUST think like the 15% of winning traders and not like the 85% of losers.
Instead of thinking about how much you can win, focus on how much you can lose and work hard to minimise your liabilities.
Riding your winners is VERY important
Risk versus reward is very important in trading.
You can have a good strike rate of say 80% but if your losing trades are bigger than your winning trades, you could still end up being a loser.
Why? Because you fail to cut losers and don’t ride your winners long enough.
So how do you “ride your winners”?
The next time you have a healthy profit, try using all or some of this profit to win even more!
This could be simply removing all your liability for a slightly bigger profit, or using a percentage of your winnings to go for late goals or lay the leading team for example.
If doing an LTD2 trade you could let the trade run at 2-0 instead of taking profits.
There are lots of markets. You have many options. All matches will present one or two opportunities. You just have to be alert to them.
If it feels uncomfortable to do this, try doing it with small stakes of say £2 to build up resistance to your subconscious voice that tells you to add to losing trades or take profits too early.
Over time, it will become as natural as breathing.
A great tip to help cut losses early
One great way of not adding to your losing positions is to say to yourself before you place any trade, “I think I’ve got this one wrong,” or “I don’t think there will be three goals in this match”, or something along those lines.
What this does is prepare you for the worst-case scenario and that things won’t go to plan.
This then makes it much easier to bail out when you need to and take a loss.
Most people think, “How much will I win on this trade,” and mentally that’s the wrong approach to take.
If you take the first option and tell yourself that the trade probably won’t go to plan, you are far less likely to want to add to your losing trade or let losers run.
Give it a go!
Hope this helps.