From The Stock Sage
Another problem that regularly comes about for a trader is to follow the plan through to the end and allow a winning trade to fully work in ones favor. Jeff Gundlach was on Bloomberg this morning and was asked an excellent question by Tom Keene:
Keene: (On Gundlach’s call to go 100x short $AAPL and long natural gas $NG_F which is +24% since he proposed it) “How do you get out of a trade like that? When does Jeff Gundlach know when to exit a successful trade?”
Gundlach: “The biggest mistake that investors make when they’re in a winning trade is to get out too soon…”
This is absolutely 100% true. What makes investors get out of a winning trade too soon?
#1. Fear of losing the profit
#2. Psychological need to be right, taking the profit satisfies a deep-seated intellectual need to be “right” even though it may end up being the wrong thing to do
#3. Paying attention to some extraneous new piece of information that may or may not be material to ones trading plan