This is why you DON'T let WINNERS RUN (and How To Fix It)

If you've ever cut a winning trade by taking profit early, you're probably frustrated with yourself for not sticking to your system. And you probably think you've got a problem with fear and greed. Fear nor greed are the issue. The real problem is something you've never even heard of before, but also something that is a lot easier to fix. Welcome back everyone. This is the first video in the new eight part series I promised that will show you how to fix your trading bad habits so you can become a high performance trader with any system in any market. This is a no fills video, no fancy editing. I've gone for substance over style, but I promise what you learn here will transform how you trade from now on. And I'll bet money you've never heard anyone else talk about this. So straight up, why do we take profit early? It's because of an automated chain reaction in your brain's decision processes that you currently have no control over. And it all starts with how the market information primes you. If you saw my previous video, you remember I used the example of asking you to imagine that your hands were dirty, so you go to the sink to wash them clean. I then asked you to fill in the missing letter. From this word, you were guaranteed to think of the letter A. I deliberately primed you in advance of asking you to make a decision about the missing letter. Because when primed a certain way, your brain triggers a cascade chain reaction of thought processes that leads to one inevitable and predictable outcome. And when you trade, the same thing is happening. You are being primed and you can only ever really make one decision, which is to cut the winner early. When you see what's going on behind the scenes, I think you're going to be amazed at how obvious this is. But you'll also be pleasantly surprised how simple it is to fix. Let me explain the prime in factor. First, you're in a trade, but in profit. Your system tells you to leave it open to gain more, but you have the urge to close it and you do. Now, after you close it, one of two things will happen. The price will either carry on in your original direction without you, or the price will reverse. If the price carries on, you feel that breaking your rules was a mistake and you made a bad decision. That's what frustrates you, right? But if the price reverses, you'll feel that breaking your rules was the correct thing to do and you made a good decision. When you've done this several times, you end up with two sets of memories. Memories of when cutting the winner was the right thing to do and memories of when cutting the winner was the wrong thing to do. But the next time you're in an open trade and you're faced with the same decision of whether to leave it open or close early, your brain is is only going to serve up one set of memories for you to recall, which is what primed you. You won't remember the many times the price continued on. For every one of those positive memories, you will recall about nine negative memories of the price reversing against you. Your brain is hardwired to recall the negative memories instead of positive ones. I'll explain why in just a moment. But first, this is the sequence of the cascade thought processes that happen and cause you to close the trades early. This is the prime. In principle, you're in a profitable trade and you're faced with a choice. Do you leave it open or do you close it early? The choice you make is dependent on what you think is most likely to happen next. What you think will happen next depends on your memories of what has happened in the past. So you begin to recall past traits, but your brain prioritizes a disproportionate number of negative memories of when the price reversed. You don't remember the price continuing on, so it appears you have more memories of price reversals, which convinces you that reversals happen more often and is the more likely outcome. So now you begin to favor closing early. And your brain reinforces that thought by by recalling all the times when you closed early before the reversal and you protected your profit. In essence, what's happened there is a runaway decision flow. You were primed, and it was only one possible outcome for the decision you made. Now, I'm going to come back to this and explain it in more detail and show you how to fix it in a moment. But I want to quickly explain why your brain prefers to recall negative memories over positive ones. It may not make sense at face value, but it's genius. Before we had supermarkets, we needed to catch our food ourselves. So imagine hearing a rustling in the bush. It might be a small rabbit. It might be a lion. If profit was our priority and we were preoccupied with gaining something extra, we would take the risk and we'd go and investigate the noise. And if it was a rabbit, yay, we might get dinner. If it's a lion, oh, we are the dinner. The risk of reward ratio is way out of sync. Getting eaten by a lion is game over. No second chances. So seeking out rewards is a very risky business. The costs are high. But when avoiding loss is our priority, in other words, protecting what you already have, such as a living body, we would avoid the risk and we wouldn't investigate the noise. Sure, we would miss out on a rabbit for dinner, but so what? It's a small benefit to give up compared to the life ending consequence of meeting a lion. The costs are small. We will always have a second chance to find something else to eat. From a survival perspective, avoiding danger, playing it safe, protecting what you already have makes much more sense. Your ancestors were obsessed with danger and paid more attention to risk rather than reward. And you've inherited that way of thinking. Your brain is hardwired that way. Capitalism wasn't around when your brain was developing, so it isn't thinking about a few dollars won or lost. For your brain, danger is danger and it may be a matter of life and death. So in its default setting, when you are in an open trade, your brain is thinking about the potential danger of a loss way more than it's thinking about any potential profits or rewards. And that's why when you look at a trade that's in profit, you immediately begin thinking about protecting that and avoiding the potential of losing it. You're already ahead, so your brain wants to protect that and play it safe. Just like your favorite sports team does when they're winning. You'll never see a willing team taking unnecessary risk for exactly the same reason. Now, as soon as you have the first thought of should I leave this open or close it? Your brain is triggered and it initiates the runaway decision flow that I just explained earlier. It will recall all of the negative memories of prices reversing because those memories are more beneficial to your survival. The evidence you now have in your mind is that reversals happen way more often than continuations. So the logical and more profitable choice is to close the trade early before it reverses it. Is the right decision based on the information your memories gave you. In that sense, you're not making a mistake and you shouldn't see it as a mistake. The problem is your brain's perception of risk and reward and its desire to protect you from danger is maladaptive to the trading environment. It's great for the rest of your life, but it's not so great for trading. So the solution is to reprogram your brain for trading. Before I show you how to fix this, let me quickly mention fear and greed. Hopefully you can see that greed really is an issue at all. Not even close. You are not taking profit because of greed. Your greedy ancestors all got eaten by the lion, so they didn't reproduce and you didn't inherit their brains. But fear is involved. It's a fear of loss. A fear of losing what you already have. But it isn't the cause. That fear is a symptom that comes after the priming and runaway decision flow has already happened. After your brain recalls the disproportionate number of memories of price reversing, you do become fearful it's going to happen this time as well. Based on the evidence you've just been given. Fear is completely natural based on your memories. Again, it's not a mistake. Fear is a beneficial emotion and you don't want to eradicate it. It's just maladaptive in this situation. Now let me just warn you. First, what I'm going to explain as the solution is simple, but it won't happen overnight. It is going to take some work. Secondly, cutting you in ashore isn't a problem that happens in isolation. It's just one small part of the bigger problem of your decision making processes. It's actually kind of like a symptom itself. To understand the bigger picture and really turn yourself into a better trader, you need to watch all eight videos in this series and put everything together at the end. This video is just the introduction, so please understand I'm discussing this topic in bite sized chunks, but it won't make complete sense until you've seen all eight videos. So be patient. Okay, so the solution is you need to rebalance your memory prioritization and recall so that when you are in a profit and you ask the question of whether it's best to close it or leave it open, your brain presents an accurate representation of the facts, not one sided. For example, if you have a system with a 60% wing rate, with a more balanced memory prioritization, you will remember six positive outcomes for every four negative. And that way you can trust the evidence that the best decision is to leave the trade open. In that case there is no longer a conflict and all fear is removed. That is when you move into the zone of effortless trading. When you recall memories accurately to retrain your brain. Step one is to have your trading system clearly written out as a plan in front of you every time you trade so you can be certain what your rules are. Step two is keeping a trading journal to log out every single trade. And you use this to make a note of all the times you ignore your trading plan and you close the trade early. Step three is then a review. Go through every trade where you broke the rules and closed the position early and count how many times price reversed and how many times it continued so that you now have an accurate number of both. What you're really trying to do here is re educate your long term memory. You're trying to counteract the ease by which price reversals are prioritized and recalled and balance the memory recall you have the next time you're in a trade. Slowly you will teach yourself that not cutting trades early leads to more profit and step four is to calculate that profit and loss that you actually have from your real results versus what you would have got if you'd stuck to your system. Again, it's re educating your brain with cold hard facts in black and white that you will remember to teach it that it is in your best interest to follow your rules and leave the trade open. All of those steps form part of the most important part of trading post trade analysis. I'll explain this in more detail in later videos in the series, but as your starting point, you must start to actively assess your results and your actions so you can build a database of evidence and memories that your brain can accurately recall and present to you on your next trade. You are on autopilot most of the time, which is why your brain defaults to the survival mode and you make bad financial decisions. You have to actively train your brain like any other muscle and in this case you are training it to step out of survival mode and into capitalism mode. You are training yourself to remember positive outcomes to balance your brain's natural tendency to only remember negative ones. And once you have that balance, you will no longer cut winners early. I really hope this video has helped guys. If it has, please give it a like Leave a comment, subscribe and share if you could keep your eye open for part two which covers cutting your losses. But above all, remember this is an eight part series and it won't make complete sense until you've seen all eight videos. And don't forget I mentor traders and this topic is my expertise. This is the sort of thing me and my clients work on, which is why I guarantee be a success. So if you're interested in that, visit my site. Thanks for watching and I'll see you next time.