It took me a long time to learn this and to be honest I still have not 100% learned this principle. What am I talking about ?
I am talking about that feeling you get when you enter a trade, it starts to go your way and you sell ‘early’ taking your 5 or 10 percent only to see the stock zoom higher onto much bigger gains. So then you might start the ‘coulda shoulda woulda’ syndrome where you start to regret the fact that you jumped out too early or made a mistake in your judgment.
This has happened to me many times and each time it happens I almost have to pinch myself so that I remember that THERE IS ALWAYS ANOTHER TRADE OUT THERE. There is no reason to feel bad about making 5 or 10 percent even if a stock goes on to make 200%. Why? Because there will always be more opportunities for other entries and setups that are just as good or better. Sometimes they do not show up that often, but eventually they will come and you will be there to pounce on them.
Making 5 to 10 percent return on a trade is actually an outstanding return to achieve, and especially so if you can get it somewhat consistently.
It is just the weird psychological nature of the trading business that these ‘psychological head games’ start to creep into your mind when you least expect it. But try your best to resist getting sucked into the psychological trap. You don’t want to be in that trap. You want to find your trade setup, study it, act on it, decide an exit, and then cut loose and run and move on to the next one.
The more detached you can become, and the more cold and cunning you can become, the better off you are in the longer term.
I am not saying that you should never hold a stock for a much longer period of time when conditions warrant it, you should. But in my experience, MOST of the time, most trade setups qualify as relatively shorter term ‘buy, cut and run’ type of setups. It is only the rare setups that offer the ‘sit tight and be right’ scenarios.
If I had to choose between taking a 5 to 10 percent gain on a stock that later on went to go up 100% or more versus taking a 10% loss on a stock, I would take the 5 to 10 percent every time! And I would feel good about it! Let this post serve as a reminder of this important mental conditioning…