I keep cutting my winners

[Bad_Badness]

Guys I have a severe problem and it's driving me crazy.

What should I do?

You might not have a problem at all. Actually you might be sitting on the "best solution" already.

If you write up your rules on how long you should ride a trade, then back test it, it is OFTEN the case it is more profitable to cut out early with a gain than fewer "big win" trades.

BTW: Mixing tactics between few big wins & small loss, and many small-med wins & larger loss, can create its own issues. Don't just change the target strategy, the whole system needs to be in syncc.

Bottom line, as other said, you SHOULD not assume you are leaving money on the table, OVER THE LONG RUN. The best way to determine the best exit strategy, is to test it over years of trades.

Personally, I have fallen for the "should have taken more", grass is greener, bias, and adjusted exits and then backtested only to find out, it was WORSE.

That being said, the answer is not take "more", or take "less more often", it is find the sweet spot of targets and stops, for your strategy-tactics-instrument. The sweet spot is not necessarily a number, like after n ticks, but more about the condition of the trade, relative to the condition of the market action.

Best of luck.

 

[Overnight]

Ahh, the long city bus ride strategy,… that and only ramen on losing days, lol...

Hahah, do you really do that? Punish yourself on losing days by forcing yourself to eat crappy college dorm-room food? I actually tried that a couple of times. Loser day or break-even day I don't eat anything but ramen-like food, winning day I get a nice meal. It didn't work, because I would have starved to death.

But that's funny as hell someone else thought of that sort of Pavlov Dog thing or whatever.

 

[SunTrader]

I make myself wait an extra hour before my red wine time.

 

[Overnight]

I make myself wait an extra hour before my red wine time.

That is not punishment, that is a health-saving benefit for your liver (depending upon whom you ask).

 

[Wide Tailz]

Wow, seriously, thanks for all the responses. It got me thinking about when this all started and why.

I've done the record analysis to see if cutting winners is better than letting them run with a trail stop, and on certain stocks it has always been way better to take profits quick. Others keep running for days after I'm out. I don't trade the "popcorn" stocks anymore or long options so the old way is obsolete.

I was working on a similar problem today in flight training. You have to land on a 200 foot long zone on the runway to pass your checkride and I kept floating way beyond it. The instructor today showed me how to do it right and I objected to the technique at first because I'm terrified of being too slow in a plane. You have to come in slow and steep to pull off this kind of landing. Sinking that steeply terrifies me but it's the only way to do that landing correctly. The fear began in gusty winds many years ago, but under certain conditions it's OK to do it this way, and you have to demonstrate it to get your license.

In a similary way, the root cause of cutting winners is I'm looking at very small timframe charts where range rules. Trending situations come up in longer timeframes much more reliably than in sub hourly bar charts, based on my observation. The fear I've always had relates to watching these small ranges too closely. I used to sell on the upper bollinger band for this reason.

And the solution is to shift gears up a timeframe or two on my charts as soon as I get the urge to cut a winner at the top of its tiny range on the smaller bar chart. Or, just set a trail stop. Years ago I discovered this can be about 1.3x the height of the first wave, since the entry is based on an elliot wave pivot (reversal pattern).

 

[Overnight]

I was working on a similar problem today in flight training. You have to land on a 200 foot long zone on the runway to pass your checkride and I kept floating way beyond it. The instructor today showed me how to do it right and I objected to the technique at first because I'm terrified of being too slow in a plane. You have to come in slow and steep to pull off this kind of landing. Sinking that steeply terrifies me but it's the only way to do that landing correctly...

You just need to work out how to fly the ground-effect. Unfortunately that does not exist in trading. Good luck to you. I think you will be a better pilot than a trader.

 

[Wide Tailz]

You just need to work out how to fly the ground-effect. Unfortunately that does not exist in trading. Good luck to you. I think you will be a better pilot than a trader.

Yes exactly! That's how I learned to land (on a dry lakebed) - fly down to a foot above the surface and hold it there as long as possible until it lands itself. It's on the test also, called a "soft field" landing.

The "short field" landing is basically navy style. Just plop it down in the zone and don't break anything.

 

[Wide Tailz]

I think you will be a better pilot than a trader.

When I bought my last plane with a huge bonus they paid us last year, I told the guys in the office it would be better to get something I will still have in a few years, than lose it all in the stock market. They plowed theirs into their (long only) 401ks. Turned out I may have done the right trade this time!

 

[Overnight]

Yes exactly! That's how I learned to land (on a dry lakebed) - fly down to a foot above the surface and hold it there as long as possible until it lands itself. It's on the test also, called a "soft field" landing.

The "short field" landing is basically navy style. Just plop it down in the zone and don't break anything.

Ground effect is more than a foot off the ground. It's about 20-30 feet above the ground IIRC. You can feel it in the controls when landing a bugsmasher.

 

[SunTrader]

All-in, parceling-out.