You always hear people let your winners ride or cut your losers early. Easier said than done, right?
Well, it's a mathematical fact that implementing this will improve your trading profits
The math behind leaving runners on and cutting losers early 👇👇👇
When trading, you have a 50/50 chance of being right. No matter which side of a trade you take, the stock can either go up or down.
There are certain indicators, levels, or other ways you can increase your odds of being right >50%, but you'll never get significantly higher
So, if our trading record is going to be ~50% right and ~50% wrong, how do we make money?
You HAVE to let your winners run and cut your losers early.
If your losers and winners are the same size (eg losers are -10% and winners are 10%), then you have to win 51% of your trades to make money
Example: you take 100 trades for $100. Winners win $10, losers lose $10. To profit, you need 51 winners (+$510) and 49 losers (-$490)
HOWEVER, if you let your winners run and cut your losers early, the # of trades you have to get right decreases
Example: you take 100 trades for $100. Winners win $20, losers lose $5. To profit, you need 21 winners (+$420) and 79 losers (-$395)