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[PTC Man]

The OTHER 90% - Mental Fitness
for Futures Traders

by Norman Hallett, former CTA/Trader

Limiting Your Winners and Letting Your Losers Run?

It occupies a chapter in just about every trading book ever written. It’s been
preached by every lecturing market guru since the Aden Sisters danced to the
music of the gold market. Go ahead and hire a personal trading coach and
likely the second thing he or she will utter will be these chosen words
(right after “Futures trading is speculative and only risk capital should be
used.”)… and those words are, “Limit your losses and let your winners run”.

OK. We’ve been told. But you didn’t have to tell us. It makes perfect sense.
“On a roll”… “Go with the flow”… “Ride the wave”… “Get out while the
getting’s good”… we’ve heard both sides of those golden words massaged
in numerous different phrases. We get it.

During my trading and coaching days, I would re-visit students that I
trained weeks or months previously and low and behold I would discover
that many of them were actually doing the opposite... letting their losses
run and limiting their gains. After a while I wasn’t surprised… I would go
into a refresher visit EXPECTING to see “limit/run rule” repeatedly
ignored.

I would ask the students “Why?”... There were many different stories but
one main theme… all the traders, in some way, had gotten out of emotional
control. During their trainings, I had made sure that they did extensive
back-testing on their systems and I did that because I knew that the more
they tested and saw that their system would have been successful, the more
they would TRUST in the system and have the strength the follow its
signals, especially through rough periods.

Apparently simply back-testing and seeing “would-have-been” results
wasn’t enough to keep these traders in emotional control. What I had been
missing was that these traders were taking the losing PERSONALLY!
These new traders had been seeing losing trades as reasons to let negative
thoughts into their heads. A loss would mean that all the articles they read
about “gambling” futures traders may be true. All the family accusations
that they were crazy futures traders … well, that could have some merit!

This kind of negative thinking (as well as other forms of futures-related
negative thinking) makes it so you don’t want to take a loss. If you take
a loss, maybe your that much closer to that idiot futures trader that you’ve
been accused of. So you enter a trade (after, say, coming off a losing trade)
and it starts to go south. As the market heads for your stop, you start looking
around at the news, or a chart of a “sister” commodity that’s showing
strength, searching for an excuse to make it OK to lift your stop. Found it.
“Hello… Cancel Bean Ticket 4154.” Stop Canceled.

If the market comes back, you’ll be the smart guy or gal that made the
right move and turned a loser into a winner. What you really just did,
however, is turn a potential winner into a potential loser.. YOU. You
may have had a winning trade, but you will lose in the end.

It’s not about YOU. It’s about THE MARKET. If you don’t take
your emotions out of it, you don’t have a shot. You must see yourself
as a trader not someone who is becoming a trader. There’s very little
room for mistakes in your trading. Leverage makes sure of that. If you
are going to play in the Big League, you have to do act and do what the
Big Leaguers do… right from the beginning.

Do all you practicing on the paper-trading playing field. Once you
put your money up, you either do what your tested system tell you to
do or pick a different profession. If you’re not training mentally, you’re not
giving yourself the best chance laughing in the face of your relatives!