This error is very common in trading. Fortunately, it is also easy to fix. You just need to go out and everything! You can always return to the deal. Disagree with the statement and can not get out of losses - is 100% due to a lack of discipline. A trader must at 100% to follow its strategy. This means that if your strategy requires you to get out of a losing position, then you owe it! It is not only the biggest mistake made by traders, but also because it often ends his career as a trader. So let's look at the root cause and symptoms that will help you identify the error and, hopefully, stop doing it.
The main cause of this error is obvious. The trader is in a position in which the movement goes against him. Rather than withdraw from this transaction, as required by its trading strategy, he continues to sit in the position, hoping that the price will return to the level bezubytka or even profits. If traders are lucky, the price will return to breakeven and it comes out of the deal. This can happen several times, telling the trader that it is an acceptable practice. And traders will be thinking to himself: "See, the movement in the position almost always takes place. I knew I was right about that. I just need to wait a little longer in some trades to make them work. " The more often the trader goes out of a losing trade, and carries him that the price returns, the worse it will further result to him.
Again, according to the trader's opinion, in a losing transaction price is always unfolding.
However, obviously, it does not always happen. And it may happen that the movement in the losing trade does not unfold in a single day. And instead of having to take a small loss, as required by your strategy, you go sit in the losing position. For day traders all positions must be closed by the close of trading on the stock exchange. But traders have losing position, often make the decision to leave the position overnight (at night). And the situation on the next trading day, as a rule, is even worse than it was yesterday. If a trader is holding a long position, in most cases, the next day the stock will trade down. If a trader holding a short position, it is usually the next day at the opening of the stock gapped make-up (opened with a gap up).
Over the years, I have collected the statistics that 90% of all positions held overnight are positions in which traders have an unrealized loss. This is an alarming statistic.
(Note: Unrealized loss - loss on the trading account, changing with the change of quotations that is present until the closing of trading positions if the deal closes by hand, unrealized loss becomes realized and deducted from the account, and the size of the deposit is automatically reduced by this amount other name.. - floating loss).
This is quite clearly indicates that these traders do not want to shut down its loss-making position at the end of the day and decided to play roulette until the next morning. Thus, the next day, the trader has more unrealized loss than the previous day. And now he says to himself: "If in the course of the day I just sit longer in the transaction, the price will still be developed, as always." But, unfortunately, this is not always the case. In fact, stocks often move in the opposite direction, thus creating even more unrealized loss for a trader. And this leads the trader to retain the position of another day ... And so on and so forth, until his position does not lead to the fact that the trader loses all his money. This is often referred to as "the transformation of the trader in the investor". What should be the short-term trading, it becomes a long-term investment.
Furthermore, retention position causes the trader to emotional stress. It affects him mentally, forcing to take unnecessary risks in order to compensate for the large unrealized loss. As a rule, the trader will unnecessarily increase its loss-making position; in another case, in some transactions it abandons its trade rules and try to increase profits to offset losses in the position.
"Vadim," sold more than a year and has been consistently profitable trader. At the end of April 2015 he sold the company's stock American Superconductor (NASDAQ: AMSC), the breakdown of the strategy every hour. He went into a long position 2,500 shares at $ 10.50. The price went sharply in the other direction. Rather than sell the shares, according to the strategy to get out of position, "Vadim" has decided to hold the position of a little more time, in the hope that the price will unfold. The action has not developed during the trading session, and closed at the LOW of the day around $ 10.00. "Vadim" has decided to hold the position overnight. He rarely leaves open positions overnight, but a couple of times and have used this method to earn money for etom.No this time, unfortunately for "Vadim", the price is not rebounded the next day. Opening day was a gap down almost $ 3.00. And he decided to buy 2,500 shares at $ 7.00, having cf.
The main cause of this error is obvious. The trader is in a position in which the movement goes against him. Rather than withdraw from this transaction, as required by its trading strategy, he continues to sit in the position, hoping that the price will return to the level bezubytka or even profits. If traders are lucky, the price will return to breakeven and it comes out of the deal. This can happen several times, telling the trader that it is an acceptable practice. And traders will be thinking to himself: "See, the movement in the position almost always takes place. I knew I was right about that. I just need to wait a little longer in some trades to make them work. " The more often the trader goes out of a losing trade, and carries him that the price returns, the worse it will further result to him.
Again, according to the trader's opinion, in a losing transaction price is always unfolding.
However, obviously, it does not always happen. And it may happen that the movement in the losing trade does not unfold in a single day. And instead of having to take a small loss, as required by your strategy, you go sit in the losing position. For day traders all positions must be closed by the close of trading on the stock exchange. But traders have losing position, often make the decision to leave the position overnight (at night). And the situation on the next trading day, as a rule, is even worse than it was yesterday. If a trader is holding a long position, in most cases, the next day the stock will trade down. If a trader holding a short position, it is usually the next day at the opening of the stock gapped make-up (opened with a gap up).
Over the years, I have collected the statistics that 90% of all positions held overnight are positions in which traders have an unrealized loss. This is an alarming statistic.
(Note: Unrealized loss - loss on the trading account, changing with the change of quotations that is present until the closing of trading positions if the deal closes by hand, unrealized loss becomes realized and deducted from the account, and the size of the deposit is automatically reduced by this amount other name.. - floating loss).
This is quite clearly indicates that these traders do not want to shut down its loss-making position at the end of the day and decided to play roulette until the next morning. Thus, the next day, the trader has more unrealized loss than the previous day. And now he says to himself: "If in the course of the day I just sit longer in the transaction, the price will still be developed, as always." But, unfortunately, this is not always the case. In fact, stocks often move in the opposite direction, thus creating even more unrealized loss for a trader. And this leads the trader to retain the position of another day ... And so on and so forth, until his position does not lead to the fact that the trader loses all his money. This is often referred to as "the transformation of the trader in the investor". What should be the short-term trading, it becomes a long-term investment.
Furthermore, retention position causes the trader to emotional stress. It affects him mentally, forcing to take unnecessary risks in order to compensate for the large unrealized loss. As a rule, the trader will unnecessarily increase its loss-making position; in another case, in some transactions it abandons its trade rules and try to increase profits to offset losses in the position.
"Vadim," sold more than a year and has been consistently profitable trader. At the end of April 2015 he sold the company's stock American Superconductor (NASDAQ: AMSC), the breakdown of the strategy every hour. He went into a long position 2,500 shares at $ 10.50. The price went sharply in the other direction. Rather than sell the shares, according to the strategy to get out of position, "Vadim" has decided to hold the position of a little more time, in the hope that the price will unfold. The action has not developed during the trading session, and closed at the LOW of the day around $ 10.00. "Vadim" has decided to hold the position overnight. He rarely leaves open positions overnight, but a couple of times and have used this method to earn money for etom.No this time, unfortunately for "Vadim", the price is not rebounded the next day. Opening day was a gap down almost $ 3.00. And he decided to buy 2,500 shares at $ 7.00, having cf.
