≡ Menu

The Psychological Mindset of Holding on to Losing Trades

Open ZERO Brokerage FREE Share Trading Account - Buy and Sell Stocks Without Brokerage - Set GTT (Good Till Triggered) Orders on System and Forget

Traditional brokers charge a lot for brokerage; however, this broker does not charge anything for stock buying and selling. Also, you can set GTT (Good Till Triggered) order after buying a stock, so that the system can sell the stock automatically at your target price even if you are not monitoring the market. Only 25k is blocked for option selling with hedge. Also, you get a lifetime free account in Sensibull (virtual trading app & strategy builder) which charges Rs.800/-+GST a month. Learn option hedging strategy if you open an account today. It takes 5 minutes to open an account online. Click here and Open Free Account with Them Today >>

In this article, I will discuss why traders hold on to losing trades but do not let profitable trades run for longer. This single action is 90% responsible for losses.

Here are the reasons:

1. NO PLAN – I have written in my blog many times but it seems it has become a habit. Most of the trades taken by novice and even experienced trades is not pre-planned trade. They take a trade because they think it will work in their favour. This results in no planning of when to exit. By exit I mean you should know well in advance when to exit the trade – profit or loss should be well-defined.

Assuming that even if it was planned – things change when the trade is live especially when the trader sees a loss in the business. The plan changes due to HOPE. Hope is the second reason for taking more losses.

2. HOPE – For the time forget about stock markets. In life when something goes wrong we start praying and by doing so we gain hope. A hope that slowly things will get fine. Sometimes it does and sometimes it does not. But eventually, with time we get adjusted to the situation. Life continues.

The same thing happens in stock trading. We sit on hope, hoping against hope that the tide will turn in our favour and we will exit in profit – but it does not happen – expiry day comes and we take a loss.

Hope is not a solution to a losing trade – Stop Loss is.

Is hoping that the trade will turn in your favour wrong? No not always. If you have invested in a good company with sound fundamentals for the long term – then hope is the only solution for the stock to bounce back in your favour. It works because long-term investing has no time limits. But the situation is not the same in derivative trading. Expiry day usually is a few days away and you cannot sit on hope. You have to take action within the specified time else you may face a huge loss.

Sometimes losses become so big that it takes a lifetime to recover the losses. Here is one trader who lost 2 crores in options trading.

I do not think this person will be able to recover his losses.

Lesson: Do not let losses run so huge that it destroys your life.
If you can overcome this simple mistake of letting your losses run you will eventually stay in the game longer and become a good trader.

3. EGO – The mindset that nothing wrong will happen to me this time is a great motivation to hold on to losing trades. When traders lose the thinking changes to the next time they will not lose and the circle continues. This is a major issue for male traders, not females.

I cannot be wrong is a psychological phenomenon that can happen to anyone – it’s called – cognitive dissonance. It is normal but one should admit the mistakes in trading, learn from them and never repeat these mistakes. But it seldom happens.

Lesson: We are humans and can make mistakes. Make a note of all mistakes you do while trading and if possible read them once every week. If you read these mistakes will be ingrained in your brain and you will not repeat them.

4. Sunk Cost Fallacy – a phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.

This is a major concern for all financial decisions. This problem is not limited to retail traders, it is for HNIs as well. Investors who have already invested so much time and money into a position cannot bear to cut their losses and give up – so they wait and wait until the loss becomes unbearable.

Lesson: Agreed you have done some research and invested a lot of time and money – but what is failing is failing it’s better to cut short the losses. When you entered a trade you knew in advance that you are taking a risk, so you should exit when that time comes when the loss is manageable.

What is the way out?

When you enter a trade you should know that there is a 50% chance of winning and a 50% chance of losing. So define both profit and loss before you enter the trade. Here is a tip – keep the stop loss target 50% of the profit target in all the trades you take. Now even if you are right 50% of the time you will end up being profitable over the long term of your trading journey.

TheOptionCourse.com © Copyright Since 2013 ® All Rights Reserved

Click to Share this website with your friends on WhatsApp

COPYRIGHT INFRINGEMENT: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However, every trade depends on the trader and his level of risk-taking capability, knowledge and experience. Moreover, stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.

DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. I do not give tips or advisory services by SMS, Email, WhatsApp or any other forms of social media. I strictly adhere to the laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles on this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given on this website. I am not responsible for any investment decision you take after reading an article on this website. Click here to read the disclaimer in full.

Disclaimer | Privacy Policy | About Me | Conservative Option Course | Bank Nifty Weekly Options Strategy
Find 200+ testimonials of my course on these pages too posted year-wise:
What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020
Testimonials Year 2021
Testimonials Year 2022
Testimonials Year 2023
Testimonial of one of my client making 25k per week
Emotional Testimonial by a Young Woman Trader and Her Mother
Difference Between other Courses and Mine
What others charge for online courses
What People Say Just After Doing My Course
Bank Nifty Course Testimonials

My student gets the Winner's Certificate of Zerodha 60-day Challenge - Click here and Open Stock Buy and Sell Free Account with Them Today!!!

Traditional brokers charge a lot on brokerage, however this broker does not charge anything for stock buying and selling. Also, you can set a Good Till Cancelled order after buying stock so that the system can sell the stock automatically at your desired price even if you are not monitoring the market. Plus only 25k is blocked for option selling. It takes 5 minutes to open an account online. Click here and Open Stock Buy & Sell Free Account with Them Today >>

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 0 comments… add one }

Leave a Comment