So once again I find myself in a position of fighting a stock stubbornly and risking a huge loss if the stock doesn't miraculously flush down. I started shorting BLNK with tiny size (20 shares) way down at 11 dollars. Today BLNK went as high as 24.87, and I am now short over 500 shares. I am seeing some huge red numbers on my screen, and while it's still unrealized losses, this is the second time in 2 weeks, and the 3rd time in a month that I am in this situation. Clearly this has become a habit. A terrible habit.
Why is it that after having read 30+ books about trading, having heard countless times "cut your losses quickly," and understanding and agreeing with that sound advice, I am still having so much trouble doing so?
I think it's partially an ego thing. I just hate to be wrong. In my life, I'm used to being right. I believe in my judgment and analytical ability. I definitely think I'm smarter than the average bear. I have numerous life experiences that tell me I am right to believe in myself. And even here in trading, I have been right. Over and over again. Even my worst loss, on JKS, if I had just stayed even more stubborn and waited one more day, I would have made a huge profit rather than a huge loss.
So let's just establish that when I get this stubborn about something, there's usually some reason for me to be this stubborn. JKS was indeed parabolic, and it was eventually going to crack. And it did. NIO, same story. I also went through similar experiences with NKLA, PLL, and JMIA. I was deep in the red but I was proven correct in the end and made a profit.
That said, trading is an unforgiving business and you can be right 9 times out of 10, or even 19 out of 20, but that one time you're wrong, BOOM, you've blown up your account. I can definitely see that what I'm doing is not safe or sound. As I continue increasing my trade size, my room for error will be decreasing. Sooner or later, this habit of getting stubborn and fighting because I know I'll be right in the end will get one of my accounts blown up. I need to fix this before that happens. Plus, even more important, THERE IS NO NEED TO GET THIS STUBBORN, THERE IS A BETTER WAY.
For me, the better way is using the tactical retreat. This is just a silly and vain redressing of the maxim "cut your losses quickly." There's absolutely no difference in reality. Only in my mind is it different. Cutting a loss has a finality to it that my ego is having trouble accepting. I don't want to lose! I don't want to admit defeat to a trash stock! And so I find reasons to fight! But ... what if it's not a loss? A tactical retreat? A temporary repositioning in order to win later? Oh, that sounds so much better to me. Yes, that's something I can get on board with.
I don't know if other traders get stubborn for the same reason that I do. I know that some people chase their losses really hard. For me, it's not really the money that I mind losing. Prior to entering trading, I was a professional poker player for 20 years, and I stopped judging myself according to money won or lost. What mattered to me was did I make the correct decision at the time? If I got my money in +EV, I didn't care (or at least cared very little) whether I actually won or lost money. I would have days where I made a few thousand but played poorly, and I would be upset at myself. I would have days I lost a couple thousand, but I knew I made good decisions all day, and I would feel fine with myself. I got good at being process oriented, not results oriented.
Thus far I have had trouble bring that same level of cool judgment to trading. It's still blurry to me where conviction ends and stubbornness begins. If you cut every single time you're unsure or nervous, will it be death by papercut? One thing is for sure, like the frog in slowly boiling water, you don't start off deciding you're going to bet the house in a losing trade. You get pieced in one small step at a time. I'll just wait a little more you say. Or I'll just make this one last add. I'll just see how it acts these next few minutes. Oh look, it's almost power hour, we'll see the real direction then. Just one small rationalization after another and when you look up, the stock has moved a great deal against you and you are staring at huge red numbers.
One more topic I'd like to address. I have a really high win rate for a novice trader. But I have no delusions regarding that. It's artificial. Now, don't misunderstand. All my trade entries are real. I am a nobody in the trading business and I am using profitly for accountability to myself. I do indeed have a 72 percent win rate in real money trades. But, the method I'm using is what I refer to as artificial. In gambling terms, I am "manufacturing wins." In other words, if I win, then I stop playing. If I lose, I keep playing until I win. This works well until it doesn't. It's kind of like a martingale system. Thus far, I have been stubbornly fighting too many losing positions, and thus far I have been successful in winning those fights, but one of these days I'm going to lose one of those fights and it's going to blow up my profits if not my account.
I saw a different trader who has only a 40 something percent win rate but seems to be extremely profitable. And I have heard other professional traders say you can make a good living with a 40 percent win rate as long as your wins are twice the size of your losses.
So win rate is overrated. Extremely overrated. I am not intentionally trying to keep a high win rate. I am subconsciously doing it because I hate to lose so much. But it's something I'm trying to fix. When my win rate drops, I will have become a better trader. I will have learned the art of the tactical retreat.