One of the hardest lessons to learn is to cut trading losses quickly.
We've all been tempted, novice or experienced trader, to override our systems. We have the desire to avoid a loss.
It's a bad move though.
Sooner rather than later the market will whack you hard. A loss that may even end your trading career!
It's psychology more than intelligence.
Plenty of highly intelligent people trade. Yet it doesn't mean they are going to be successful. In fact, highly intelligent people can often over think things. They may also believe they can work out a strategy to outsmart the markets.
Markets are great levelers. So having a robust and disciplined exit strategy for every trade is essential.
Letting ego, intelligence and pride get in the way is a short cut to having zero dollars left in your trading account.
It's human nature not to want to lose. Most of us have had this ingrained in us by our parents, teachers and coaches.
Losing must be avoided at all costs.
So when it comes to trading, we tend to always enter positions hoping to make money. A loss is seen as a failure.
Many prefer to sit on a losing trade and hope it makes a comeback, rather than admit they were wrong. This is how ingrained the 'failing is bad' notion is.
To confuse our thinking further, how many times have you actually cut your losses, followed your system, only to see the stock reverse and head higher almost immediately?
Your mind starts telling you that you were wrong for selling! And this is where further confusion and frustration will set in.
One thing we need to learn and accept as traders, is you are going to lose and you are going to lose frequently. If you cannot train your mind to accept this fact, then your longevity in this game is going to be limited.
Failure is part of the process towards winning. So cut your losses short - ALWAYS - and let your winners run. It's an old saying but a good one to remember.