I spent the last week in southern Florida visiting my mentor. We talked about several things but one concept that stuck out was:
“Exit your winners and losers the same, with confidence.”
I can rationalize a loss because, assuming I have followed my plan and risk parameters, I will have an opportunity to make that money back. It may take two trades or ten trades. The reason we add to losers, move stops, go over our limits is because we do not have the proper perspective. We get too caught up in that single event as if it is the only thing that matters.
Most traders lack confidence or go through times of less confidence. It is natural, a normal thing to do with a high failure rate. After a few losses you start to focus on them. You may have had many successful days in the past but you trick yourself into believing this day is somehow the most important.
This gets back to recency bias but instead of seeing it in a chart we see it in terms of trading career. The only way that you can exit a winner and loser with confidence is by having a plan. Having a reason for your actions makes it possible to monitor results. Monitoring results makes it possible to improve. Improving makes it is possible to have confidence. It is all one big circle but it starts with having a plan.
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