Cut Losses And Let Winners Run

One of the most enduring sayings on Wall Street is “Cut your losses short and let your winners run“, but many traders still appear to do the opposite, exit the market after a small gain only to watch them head higher, or holding a small loss, only to see it worsens.

This behavior still exists today and is deeply ingrained in our DNA.

Therefore, not cutting trading losses and closing winning trades too early is hard to overcome and a problem traders have to actively work on.

A structured approach and regularly reviewing your trading performance is, therefore, a key to your success as a trader.



Cut Losses And Let Winners Run Trading System


How to Cut Losses Short and Letting Your Winners Run?

The answer could be to change the way you think about losses; more specifically, love your losses.

There is no 100% loss free system!!

If you see a loss on an open position – take the loss.

LOVE THE LOSS.

Be happy that you banked a loss.

When you enter a trade expect it to be a loss. LOSSES ARE GOOD.

Sounds like counter-intuitive advice?

Well, successful trading is largely counter-intuitive. forex-cut-loss

Once you’ve changed the way you view losses the winners will seem to take care of themselves.

That said, winners need to be “RUN”.

Push the limits of your patience when holding onto a winner. Very often you’ll take profits only to see the market surge even further in your direction.

Be patient with winners.

Hold as long as you can.

Trading NOTES

How to Cut Losses Short and Letting Your Winners Run…?

It’s very simple and easy to do.

Take look at the chart above for details.

I hope you get what I mean.

The only way to cut losses and let profits run is to first prepare yourself mentally. If you don’t have the willpower to do it, no system in the world will help you.
Give them as much space as you can afford.

Why trading pull backs is so profitable, is because markets ebb and flow, and a pull back helps you to refine your entry point so that you are entering at or close to the turning point between the ebb and flow (again, this is not top or bottom picking because we are not trying to predict a trend change).

You won’t always get it exactly right, but this Trend Following strategy is highly effective and very low risk.

Waiting for a pull back and trading from that pull back is a much higher probability play than entering at the extended part of a move.

Forex-Pull-Back-DownTrend

Pull backs can help lower entry point risk as we are usually trading at a key market area that has previously shown support /resistance (depending on the direction you are trading of course).
Let’s look at a chart to understand this better… In the chart below, we have a clear DOWNTREND in place.

As you can see, if you tried to BUY near any of those low points, the market only moved up a small distance before the trend resumed, and the MUCH bigger payoff came if you had looked to be a seller on the retracements higher or a seller on strength.


Trading NOTES
Identify trend then look for pull backs…

The primary way to trade pull backs is to LOOK FOR TREND and then LOOK FOR PULLBACKS within the trend.

We need to remember, however, that markets do not move in straight lines.
So, if you have identified an uptrend, for example, it doesn’t mean the market may not move down for a candle or two candles or three candles or more candles, within that overall uptrend.
Pull backs provide us entry opportunities on daily as well as intraday charts.
A trader truly focused on trading pull backs must learn discipline and patience, because trading pull backs mean you aren’t just entering wherever and whenever you want.

TRADING Note
Like any business, the Forex Trading Business like have slow days and sometimes you will have good days.

Imagine you are running a cafe on a busy street… somedays are better that other days. But as a business owner, you continue to do the right thing regardless its a slow day or good day.

You continue to operate your cafe by opening on time and closing when it is time. You continue to track your stocks and you continue to prepare your food and coffee.

The same applies to Forex. Sometimes your strategy does not work but you know that in the long run the strategy will work and you continue to trade with the right discipline regardless of the result.

Of course, be sure to know that the strategy you use works well in the long run.

There was time when I thought I would never become successful in trading. Thank God I was wrong. I studied different strategies and learnt much about trading including difficult to understand things like Fibonacci, Elliot Waves, Convergence, Divergence, you name it.

And how do you think if all these things helped me in trading? The answer is NO! I did not become a better trader when I learnt all of these things.

Why? The truth is you will never start getting consistent results if you always change the strategies. I am not going to say that Fibonacci techniques do not work or some other techniques do not work. The problem was I did not know what things were best to use. But the truth is there are no best things to use.

There are things that work and thing that do not work. That’s it. And I learnt one of the most important lessons of trading. What is it? It is simple indeed. YOU SHOULD STICK TO ONLY ONE STRATEGY and trade it on everyday basis! Sure the strategy should be a reliable and good working one. The one you are going to learn here is of that kind.

It is reliable and easy to implement. And the most important thing about it – IT WORKS! There is not such a thing as the best strategy in the world. There are strategies or indicators that are worth of using. That’s all.

All the systems including the indicators are only instruments to achieve our trading goals. When I understood this simple truth It was easy for me to get used to idea of using only one system to avoid confusion.

Remember you do not need all the indicators or trading systems in the world in order to become a successful trader. Moreover the majority of strategies and indicators are complex and ones are difficult to use in real trading. The second truth I understood was all the best performing strategies I had ever seen before were simple and easy to implement.

If the strategy is complex, the ambiguity will lead you to confusion and the confusion will lead you to losing your hard earned money.

So our second rule and the truth will be the following: IF WE WANT TO MAKE MONEY IN TRADING WE SHOULD CHOOSE THE STRATEGY THAT IS EASY TO IMPLEMENT AND HAS NO AMBIGUITY.

In fact you do not need to know much of trading in order to trade successfully. All you need is to understand what things are worth of learning.

MONEY MANAGEMENT


I do not know any successful trader who does not have a money management plan. To have a money management plan is a good idea but another idea that is even more important – to follow your plan to the letter.

So REMEMBER, you should follow money management with each and every trade.

There are different ways to manage your capital but I would like to show you only the best one that brought me the best results.

Probably you heard someone saying that you need to trade 5% of your initial balance with each of your trades.

Example: you have $1000 balance. 5% is $50, so it means you should trade $50 options until you reach you balance up to $2000. Once you have it, you trade with $100 until you have $3000.

And by the way the majority of traders who have pretty good results follow this plan. But I do not. Why? I know better way to trade. The plan I have shown you above has one disadvantage.

When you have a losing streaks of several losing trades going one by one you can lose a good portion of your balance. You see with each and every of your trades your real risk is more than 5% because you are trading fixed values of initial balance and not your real time equity. So I have prepared a better plan to you.

What you need to do is to trade 5% of your real-time equity. So what does it mean?

It means you should recalculate the amount of money you are going to put into the next trade with each and every of your trades.

This is a very reliable plan to trade that will keep your balance alive even in the worst scenarios you could imagine. But the part of it, if you implement this plan with my system you will have a money printing machine.

Your account will be growing at a very healthy pace.

Here is example: Let’s assume your initial balance is $1000. It means your first trade should be $50. Now let’s assume you have won that trade. So now you have a balance of $1035 (considering you have made $35 with the trade).

What will you do next? You should recalculate that 5% of your real time balance before you place another trade.

5% of $1035 equals to $51,75. So your next trade will be $51,75. You have won your second trade and now your balance is let’s say $1041,04.

Before you place your third trade you recalculate your 5% of equity and get 52,07. So your third trade will be $52,07. Got the idea? If you lose that trade your balance will be 988,7. So your next trade will be $49,43.

Sure this is just an example and real values depends on the return on investment your broker provides. But believe me if you be following this plan, your trading will be much safer because your risk will never exceed 5% of your real equity.

I want to remind you that money management works only if you follow it. Follow this plan with each of your trades and you will be growing your account safely and at healthy pace.

Is The Trend Really Your Friend ?
If I had a penny for every time I’ve heard the phrase “the trend is your friend” It’s possible I would be able to retire from trading forex.

It has to be one of, if not thee most often repeated pieces of trading advice heard online and in books.

The question I want to answer today is: “Is the trend really your friend” ?

The concept of trend is one which is implanted in the minds of traders from the very beginning of their trading career. Even in the first trading course I brought (which was terrible btw) the guy talks at length stressing the importance of trend and how its essential for you to be able to make money from the markets.

While the trend is needed to make money, whether you’ll make money or not from a trend depends on where you manage to get into the trend itself. Getting into the market at the beginning of a trend is a sure-fire way to make alot of money, the problem people encounter is: “How do you define when a trend has begun” ?



Why The Books Get It Wrong


The majority of trading books and courses teach you the longer the trend, the more likely it is to continue trending in the same direction.

The reason they believe this to be true is due to the herding and grouping bias present in humans.

When people see lots of other people doing something they feel like they need to do the same, in trading this concept translates to the trend.

The longer the trend, the more and more people who are all doing the same thing i.e buying or selling, people who are not in the trend will look at this and think they should also begin buying or selling as that is what everyone is doing, therefore it must be the right thing to do.

So trading in the direction of the trend offers people safety, they feel safe because their doing trading in the same direction as everyone else.

Unfortunately the books fail to take into account the way the forex market actually works.

Trends, as with everything else in the market have a cause and effect relationship. They do not manifest out of nowhere, certain things must happen in order for a trend to be created and for a trend to keep moving in the same direction.

Lets take a look at how trends really work…..



How Trends Really Work


To figure out if the trend is really our friend we must understand how trends themselves work.

Everything in the market happens for a reason, the market doesn’t go up and down on its own, there are real identifiable causes of why certain things happen in the market, trends are one such occurrence.

Trends are caused by a need to make money.

The Forex market is a zero sum game where one persons losses equate to another persons gain, in order for someone to make money on a trade another trader/traders must lose. The bigger the amount of money you want to make, the higher the number of people who you need to lose money.

Trend reversals occur because of the profit potential of the market continuing in the same direction has decreased, the longer the trend, the more and more people who are either long or short (depending on the trend) if everybody is entered in one direction then the simple way to make alot of money is send the market in the other direction, doing this will ensure all the people who were late into the trend( i.e retail traders) lose money, the money they lose goes into the pockets of the people who caused the reversal mainly the banks/hedge funds.

When the retail traders lose money by closing their trades it will cause the market to move in the direction of which the reversal is taking place, how far the market moves is entirely dependent on how many traders had trades open in the direction of the trend before the reversal took place.

The market movement generated by the traders closing losing trades will eventually reach a point where all the traders who lost when the market reversed identify the movement as a new trend.

This is usually the time when the market will stop trending and either consolidate or retrace.

It’s these retracements and consolidations which give the market the ability to keep trending in the same direction.

Example:
Is The Trend Really Your Friend ?
If I had a penny for every time I’ve heard the phrase “the trend is your friend” It’s possible I would be able to retire from trading forex.

It has to be one of, if not thee most often repeated pieces of trading advice heard online and in books.

The question I want to answer today is: “Is the trend really your friend” ?

The concept of trend is one which is implanted in the minds of traders from the very beginning of their trading career. Even in the first trading course I brought (which was terrible btw) the guy talks at length stressing the importance of trend and how its essential for you to be able to make money from the markets.

While the trend is needed to make money, whether you’ll make money or not from a trend depends on where you manage to get into the trend itself. Getting into the market at the beginning of a trend is a sure-fire way to make alot of money, the problem people encounter is: “How do you define when a trend has begun” ?



Why The Books Get It Wrong


The majority of trading books and courses teach you the longer the trend, the more likely it is to continue trending in the same direction.

The reason they believe this to be true is due to the herding and grouping bias present in humans.

When people see lots of other people doing something they feel like they need to do the same, in trading this concept translates to the trend.

The longer the trend, the more and more people who are all doing the same thing i.e buying or selling, people who are not in the trend will look at this and think they should also begin buying or selling as that is what everyone is doing, therefore it must be the right thing to do.

So trading in the direction of the trend offers people safety, they feel safe because their doing trading in the same direction as everyone else.

Unfortunately the books fail to take into account the way the forex market actually works.

Trends, as with everything else in the market have a cause and effect relationship. They do not manifest out of nowhere, certain things must happen in order for a trend to be created and for a trend to keep moving in the same direction.

Lets take a look at how trends really work…..



How Trends Really Work


To figure out if the trend is really our friend we must understand how trends themselves work.

Everything in the market happens for a reason, the market doesn’t go up and down on its own, there are real identifiable causes of why certain things happen in the market, trends are one such occurrence.

Trends are caused by a need to make money.

The Forex market is a zero sum game where one persons losses equate to another persons gain, in order for someone to make money on a trade another trader/traders must lose. The bigger the amount of money you want to make, the higher the number of people who you need to lose money.

Trend reversals occur because of the profit potential of the market continuing in the same direction has decreased, the longer the trend, the more and more people who are either long or short (depending on the trend) if everybody is entered in one direction then the simple way to make alot of money is send the market in the other direction, doing this will ensure all the people who were late into the trend( i.e retail traders) lose money, the money they lose goes into the pockets of the people who caused the reversal mainly the banks/hedge funds.

When the retail traders lose money by closing their trades it will cause the market to move in the direction of which the reversal is taking place, how far the market moves is entirely dependent on how many traders had trades open in the direction of the trend before the reversal took place.

The market movement generated by the traders closing losing trades will eventually reach a point where all the traders who lost when the market reversed identify the movement as a new trend.

This is usually the time when the market will stop trending and either consolidate or retrace.

It’s these retracements and consolidations which give the market the ability to keep trending in the same direction.

Example:

image of consolidations in usd/jpy uptrend

Here is the up-trend of USD/JPY

You can see I’ve marked all of the consolidations that took place in this up-trend, without these consolidation the trend would have not be able to continue, know why ?

Because the consolidations are the place where a significant amount of traders will lose money.

When the market stops moving in one direction and begins moving in the opposite direction a large portion of traders will believe a reversal is taking place, therefore they will begin placing trades in the direction of which they believe a reversal is taking place, in the example above it will be sell trades.

This is what happens in the consolidations above, the market comes to a stop, goes down a little and traders begin selling.

When the consolidation has fully formed, in other words, is making swings up and down creating the sideways movement, traders become confused as to which way the market is going to go, some believe its going to break lower others think its going to break higher, all of this confusion allows the large institutions to place trades into the market without causing any significant movement.

Each move higher you see after the consolidation is caused by the traders who were short inside the consolidation closing their trades at a loss, it’s this liquidation of losing positions which causes the majority of the movement in the market
Another thing to take into account is where the consolidation is within the trend.

A trend is like a scale of different emotions, at the beginning of a trend people fail to recognize a new trend is stating to form due to them believe the initial move up is a pullback to the preceding trend, so at this point most of the traders are still going short as they believe the market is going to continue moving lower.
As the trend keeps on moving in one direction more and more traders begin to believe the market is going to continue higher.

This means consolidation’s which form further and further into the lifespan of a trend contain substantially less traders going short than the consolidations seen at the beginning of trends. therefore the movement generated by the traders closing losing trades decreases as the traders belief that the market is going to continue trending has grown higher than the belief that it is going to reverse.

It will be here that the banks/hedge funds start taking all the profits off their positions.

They couldn’t do this at the beginning or middle of the trend as not enough people had gone long. You must understand, by the time the market reaches the last consolidation seen at the top of the image the banks and hedge funds are in billions of pounds worth’s of profits, to close a positions in that much profit requires hundreds of thousands of trader all going long.

This is why the banks need retail traders placing trades late into the lifespan of a trends, their profits depend making people do the wrong thing, if the majority of traders were still going short late into an up-trend the banks would not be able to close their trades and make a profit, therefore its essential for the concepts which surround trend trading i.e “longer the trend the more likely it is to continue in the same direction” be wrong because if it wasn’t, the banks would be able to make any profits, or they would make a significantly lower amount of profit than what they currently make.



Trends Are The Same Across All Time-frames


Although the example explained above is from the large up-trend on USD/JPY, I could have just as easily taken a trend on a different time-frame and shown you that it follows the same pattern.
Here’s a 5 minute chart of EUR/USD

The two vertical lines mark a single down-move which lasted around 16 hours.

Even though this isn’t a large trend like in the USD/JPY example the process which fuels the trend is the same. When the market stops falling and begins consolidating or retracing, people believe a reversal is about to occur.

They place buy trades with the expectation that the market is going to move higher.

When the market begins to fall, the trades placed by these traders suddenly go from being at a profit to begin at a loss, the traders then close their trades on mass creating the down-move you see after each consolidation and pull-back.

Even on time-frames as low as this its clear to see trends follow the same “pattern” as they do on higher time-frames.

The reason why we can switch time-frame and see the same pattern is because the market works the same across all time-frames, the only difference is the traders who are operating on other timescales.

Big trends like the one USD/JPY or EUR/USD are caused by the banks all working together to create a reversal, what we know as small trends on the lower time-frames are caused by intra-day bank traders doing the same thing only on a much smaller scale.



So Is The Trend Really Your Friend ?
Well……….

It all depends on where you get into the trend.

If you can get into a trend right at the beginning (which is going be difficult as no technical signals would have appeared yet ) then the trend will be the greatest friend you’ve ever had, you’ll make so much money it that is likely you would stop trading altogether.

If you get into a trend when it near the end of its lifespan you’ll still be able to make a bit of money, but you must keep your expectations low, don’t fool yourself into thinking “the market’s been going up for ages surely its going to keep moving up?” As you now know the process and intentions behind trending movements.



Summary


The trend is critical if you are to make money from trading forex, “the trend is your friend” is only true if you properly understand where you’re at in the life of a trend.

If you would like more information on why the concept of trend has been made up in order for you to lose money then my book “Zero Sum Fun – How To Profit From Losing Traders” will give you a far more detailed explanation of the concepts discussed in this article. In the book, I also explain the three phases behind each trending movement, these are not the typical accumulation – distribution phase talked about in common technical analysis books but the three process which take place that causes each individual up and down movement in the market.

Thanks for reading please leave any questions in the comment section below.

Mi komencos ekzerci inferan memdisciplinon sur mi mem.
Nur tiam min ne ĝenos la bruo. Estu objektiva kaj daŭre provu. Rezistu ĉiujn tentojn.

Fermu viajn okulojn la tutan tagon. Nur plenumu la planitan taskon. Ajnaj neplanitaj bruaj perturboj. Devas rezisti tenton
Mi ne estas kiel ĉiuj aliaj
Mi elektis la plej malfacilan vojon. Ĝi estas nur la fika unua paŝo. Mi absolute ne permesas, ke miaj celoj malsukcesu

Meditado, estas kialo por ĝia ekzisto en ĉi tiu mondo. Kaj mi volas praktiki meditadon ĝis la ekstremo.
Faru tion nur. Nur tiam mi povas tute forigi la perturbon de subjektivaj emocioj kaj diversaj bruaj perturboj. Mi volas esti en la 5%-15% de la mondo。
Ĉar ĉi tiu ideo vere ne estas ĉefa kaj tre marĝena. Do mi diras tion en Esperanto. Mi nur volas esti objektiva persono, kiel la observanto en Marvel's What If.

Se mi povas garantii limdaton de 1 ĝis 5 jaroj sen esti interrompita de iu bruo, restu objektiva kaj koncentrita, la tago kiam miaj kvin grandaj celoj ĉiuj estos atingitaj.

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