Long term traders, when asked by a rookie for their secret of trading success, might close their eyes and rock gently back and forward, before dispensing a pearl of wisdom along the lines of:
Let winners run and cut losses quickly.
The rookie nods politely, as one does in the presence of eccentric greatness, before racing off with a puzzled frown to pursue his or her strenuous pursuit of the infallible entry.
So what is this nugget of conventional trading wisdom all about?
It refers to the twin temptations of protecting profitable trades by closing them before they have time to blossom and allowing losing trades to linger in the hope that they will turn round and become winners. Yielding to these temptations results ...