Cutting losses

[Iron]

When trading, you may know on a conscious level that what you're doing is rational and losses are unavoidable, but still experience emotions such as fear that prevent you from closing trades that have gone against you(in the same way that someone with arachnophobia might know that a house spider is harmless, but still be terrified of it). However, I think the difference between winning and losing is how you respond.

I was in a martial arts class last night, and the instructor used an analogy to illustrate the importance of just responding to a threat, whatever you're feeling. If you're going climbing with someone, and they start to slip backwards towards a ledge, you're going to reach out and grab them. You do so because there's a higher cause at stake - preservation of life. He said that, in a fight scenario, you also need to do whatever is necessary for preservation of life, unflinchingly dealing with the threat (whilst accepting that success is never guaranteed). I would say that the same kind of mentality is needed for cutting losses in trading (even though the stakes are far lower!), ie accept the pain but treat doing what you need to do as non-negotiable.

Any thoughts?

Jeff

[Alpha322]

When trading, you may know on a conscious level that what you're doing is rational and losses are unavoidable, but still experience emotions such as fear that prevent you from closing trades that have gone against you(in the same way that someone with arachnophobia might know that a house spider is harmless, but still be terrified of it). However, I think the difference between winning and losing is how you respond.

I was in a martial arts class last night, and the instructor used an analogy to illustrate the importance of just responding to a threat, whatever you're feeling. If you're going climbing with someone, and they start to slip backwards towards a ledge, you're going to reach out and grab them. You do so because there's a higher cause at stake - preservation of life. He said that, in a fight scenario, you also need to do whatever is necessary for preservation of life, unflinchingly dealing with the threat (whilst accepting that success is never guaranteed). I would say that the same kind of mentality is needed for cutting losses in trading (even though the stakes are far lower!), ie accept the pain but treat doing what you need to do as non-negotiable.

Any thoughts?

Jeff

Interesting read Jeff, my take on the reason why people dont cut losses is that they never believe there is another oppotunity round the corner and if you have a edge even a higher payout than the loss. If you lose more money than you are making on any trade and then wonder why your P.N.L is reducing stands to reason. I have got so use now to cutting losses and with more experience under my belt they never go beyond what i say they must. When you practice this the bankroll looks after itself trust me

[rogerlisa]

I think the big thing is that during the course of a trade things can change so dramatically in a short space of time and you can soon get suckered into thinking that your potential loss will turn and either break me even or even go to profit, it has to right!Problem is it very rarely does and your control has to be to say ok I have lost this one where did it go wrong. Sounds easy but wow I think we all find it hard. I was doing some dutching the other day and thought ok to get the profit I want all I have to do is use the lay price which is only one click away. Its is bound to do that fifteen minutes out and of course it didnt all the way to two minutes before the off where it plummeted to 8 clicks below. What a bummer left me in a right pickle with a loss of 115 as the bugger won - which is probably why it dropped so quickly last minute. I should have known this and acted sooner, but because I was up for the day until this I thought let it ride it might not win in such a large field. Self control lacking I thinks and Mr Greed stepping in!

[Iron]

Thanks for your replies guys.

I think another reason why people may find it hard to take losses is due to staking. If you've over-extended yourself and are about to lose a chunky proportion of your bank due an unforeseen spike, it might be tempting to think 'What the hell! I'm going to take a huge hit come what may, so I might as well let this play out and see what happens. In for a penny, in for a pound'. I've certainly been there myself...

Jeff

[hgodden]

There's also the hope that it might turn around of course, which may make people hesitate

[LinusP]

As I new trader I am starting to think that this is the most important part of trading, it is also very easy to forgot everything (graphs/other horses) and just stare at the odds hoping it is going to come back...

[superfrank]

they say that pro traders are paid for their exits rather than entries - i couldn't agree more, the psychological challenges of exiting trades are much more difficult to manage.

[LinusP]

I think my p&l from tonights wolves card somes up why you need to be good at cutting losses. Bearing in mind I was using £6 stakes on the favourites, I am really happy with the 60p races

[redtra]

I've noticed one of the problems I have when using the minimum stake is knowing when to close a losing trade simply because the amount of money is still small. Even when it goes against for 8 or 10 clicks, it can still only be 60p or 90p to lose If this is multiplied up for using larger stakes, then it would be an expensive loss. I have decided to try and pretend that the amounts are in 100's instead to see if it makes a difference...maybe then I will close a losing trade more sensibly. Losing £90 will feel very different to 90 pence. Also, thinking as a percentage of the stake could work. If anyone has any advice on how many clicks it is ok to let it go, it would be very much appreciated because at the moment I am not sure.

[scotty875]

As I new trader I am starting to think that this is the most important part of trading, it is also very easy to forgot everything (graphs/other horses) and just stare at the odds hoping it is going to come back...

Yes, it can be almost hypnotic.
I've found to my cost that that can be the time to "cut and run" so that your bank lives to trade another day.

[Iron]

'Two basic rules: (1) if you don't bet, you can't win. (2) If you lose all your chips, you can't
bet.'

Larry Hite

[superfrank]

one approach is to ask yourself, "if i didn't have this position, would i want to take one now in the same direction?"

if yes, hold the position, if no, cut out.

[Alpha322]

Losing £90 will feel very different to 90 pence.

Cant agree with this
Most traders work in percentage terms so say £90/1% = £9000 so a trader working with a stop loss of 1% would work with a £9000 bankroll to him/her it is 1% with you losing 90p you should be working with a bankroll of £90.

so there is really know difference it is about what your end goal is

[Iron]

Does anyone here actually regularly risk losing £90+ per trade on a regular basis (apart from Euler), out of interest?

Jeff

[LeTiss]

Does anyone here actually regularly risk losing £90+ per trade on a regular basis (apart from Euler), out of interest?

Jeff

Yes