When you run your winners you are allowing your winning trades maximum opportunity to produce large profits.
Running Your Winners?
Without doubt, during your system testing process, you will have taken the sound advice of all systems traders by cutting your losing trades and running your winners.
You must always operate your live trading using exactly the same methods as those you used in your evaluation, otherwise there will have been no point in your careful systems assessment.
It’s most likely that you have decided to be a trend trader - all successful traders are trend traders. That being so, you will experience a greater percentage of losing trades than winning ones. This is due to the fact that most of the signals given by your system will be false alarms - and not turn out to hail the beginning of new trends. Most of these false signals will be market noise or retracements in what are trends in the opposite direction.
All of this is expected to happen, so there are no surprises here. However, you have carefully assessed your system using sound methods and you realise why it is so important not to curtail any trade that is running profitably - unless the planned conditions contained in your system rules have been met.
To pocket the profits early may be very tempting and may seem to be a wise move, especially, for example if you have recently experienced a string of poor results.
You may be in the enviable position of having a really large open position gain and be worried that, if you follow your system, you will allow a large proportion of this gain to be ‘given up’ by permitting the trade to continue ‘towards your exit’.
Why not cash in now? It’s never wrong to take a profit. Don’t be greedy! All these tempting ideas go through your mind. Perhaps the trade does close out eventually at a much lower profit. There you are! You would have been better off if you had banked the money when you were going to.
But the very biggest gains occur when the market doesn’t turn against you but keeps right on going on and on. Eventually you will ‘give money back’ as the trade closes at some point - but without running that winning trade you will never be taking advantage of the potential of your system.
When you assessed and tested your system, you were running your winners and it was on this basis among other things, that you accepted your system.
You must keep to your system and run your winners if you are to succeed in achieving its potential. If you are using good methods, running your winners will mean nothing more than following your system.
Copyright David Bromley 2006
All Rights Reserved.