Trader's Desk – Profit Protection Bias
Today's coverage from the Trader's desk is the Profit protection bias.
Set up
Has this ever happened to you?
You identify a set up and take a position. Your execution is textbook.
Limit order, stop loss, target.
The momentum favours your trade and your position is in profit.
Everything is proceeding as per your plan. Your position is profitable and you confidently move your stoploss forward.
From here, the best course of action is often to step back and let the trade play out with minimal interference.
The Bias kicks in
The position continues to move in your favour. Your unrealized profit grows.
All of a sudden, you loose your nerve and close your position securing the profit.
After all, one in hand is worth two in the bush.
There is no right or wrong action here, no judgement. But it is worth asking: why did we lose our nerve?
Could we have done better by simply letting the trade continue? Or, if we felt compelled to act, would it have been more prudent to trail the stop loss further, protecting more of the profit while still giving the trade room to breathe?
A trader's journal
This is why a trader's journal is so essential. A journal is not a record of your profits and losses. A journal is a record of your emotional intelligence.
Over time, those observations become data. And with enough data, you can recognize patterns, refine your behaviour, and become a sharper, more disciplined trader.
