Today I want to talk about holding winning trades and why this is so important!
We all know it, we enter a position, after a few 1% losses the past few days we suddenly see this beautiful blue colour appear on Metatrader 4, PROFIT, finally! Our position is going well, it must be that I do something right! Now after a few hours in profit, we see the price suddenly weakening, we see some clear rejection candles. Oops, what is this? I really don’t want to take another loss this week, NO WAY! I immediately close my position completely and felt glad that I was able to recover some of my previous losses! But I still have this gnawing feeling, that gnawing feeling that I did not stick to my trade plan. Now imagine that the price still does what I expected and would have wiped out all my losing trades and made me nice profit too? Ah, what the heck, at least I haven’t taken a loss … We’ll see what the price does.
A few hours later, you open your Tradingview again and look at your closed position, meanwhile you have become obsessed with this closed position, you follow the trade step by step. You see the price slightly do what you want, you get slightly frustrated: “Why did I close this position anyway? I would have wiped out the losing positions by now! ”
5 days later you see that this trade has followed your plan perfectly and has reached your long-term target of 1500 pips. You feel very bad and especially disappointed in yourself. If only I had done this, if only I had done that…
Recognizable? You are not alone, everyone experiences this! The only difference is that after learning this scenario a few times, some learn from it, and the other half struggles to shake off this bad trait!
This is exactly why I want to talk about this topic, so that you don’t have to come across this in the future!
First of all, why is it so important that I never close positions completely?
The reason behind this is quite simple, you never know when the market will stop rising / falling. Now take the Australian Dollar as an example. You are in a SHORT position and sell the AUD against the USD, you have some profit, now let us take, half a percent profit. Suddenly, there are (unfortunately) massive wildfires in Australia, this news is coming out, panic has hit banks and institutions that have invested in the Australian currency. Large volumes of AUD are sold for a bargain price, because of course the value falls, who wants to invest in a currency of which the country is literally and figuratively on fire, nobody! Your AUD / USD SHORT position is now no longer at 0.5% profit but at 3.5% profit. A few weeks later, the fires are still going on, your position is now at a 10% profit. As a result of the fires continuing for so long, the Australian economy has obviously been hit hard and needs quite some time to recover. After a few months, while the economy is still recovering, you are still in this SHORT position and your position is 21.5% in profit. Of course, if you had closed your position completely in the beginning, this would never have been possible and you would have thrown this profit in the trash!
Why is it important for me to stick to my trade plan and not close my positions earlier?
If your trade plan means that you always use a risk-to-reward of 1/3, that means that you can lose 3 times in a row, and if you then have 1 winning trade, you are back on BREAKEVEN. Right? This here, our R / R is perhaps the only thing (along with our risk management) that we have control over. The market and the news, you have 0.0 control. So why the hell would you start playing with your R / R and let the market take control of this too ?!
If you close at 2% profit every time, because of course, you are happy that you are in a winning position, then your plan will be completely in the water and your margin for mistakes will be much smaller! Instead of losing 3 positions, winning 1 position and you are back on BREAKEVEN, it has now become 2 times lose, the next trade has to be won, to be back on BREAKEVEN. You put a lot of pressure on your shoulders, simply because you cannot control your emotions!
Stay disciplined and stick to your plan!
The main reason why you have to hold trades for a long time is, and I personally proved this last year and this year. 1 trade, literally 1 trade, can make your whole year!
For the people who have been in TFD long enough, remember I took a LONG on XAU / USD in October, where I was in this position for over 100 days. Below is the example.
Also, this year, I was in a EUR / NZD LONG position where I was in this position for a month and a half. Below is the example.
These are trades that occur a few times a year, and if you catch one of these, you can trade for the rest of the year without pressure, because you have a lot of margin for mistakes. And secondly, logically, these are the trades you can get the most profit from!
What has helped me a lot to hold trades for a longer time is the following.
I took a notebook / sheet and wrote the following: “I, Armani-Rochas Decock, love myself and respect myself. For that, I will stick to my own rules and respect my plan. I will keep my plan and will not let the external factors get to me. The market lives its own life, I have no control over that and I am at peace with that. All I have control over is my own feelings and my plan. So keep respecting yourself and your plan, don’t be a pussy!
SIGNATURE and DATE.
The conclusion: let winning positions run, never close winning positions completely and stay disciplined!
I hope you have learned something and will apply it yourself. Keeping trades can literally be the difference between failure or success in the market!
The Forex Dictionary Team