The Fifth Cardinal Mistake:
OVERSTAYING YOUR POSITION
One of the most common mistakes of trading futures is overstaying your position, or simply failing to take profits at a predetermined level. There seems to be a natural law that the market is only going to allow one individual so much money before it starts to take it back. Yet, it is when you have these profits, especially paper profits in your account, that you often try to get the last nickel out of the trade.
If the market meets your price objective and you are still in the market without a close stop/loss order, you are overstaying your position. All too often the market breaks sharply through your "mental stop" and from that price level, you watch your paper profits disappear before your eyes. Then you decide to hold on for a small rally, and the market never rallies enough. It drops back to break-even, and now you really begin hoping. Next thing you know you have a loss. Be aware that a large profit can turn into an even larger loss.
This mistake can be overcome by the use of trailing stops raised closer to the market as your price objective is approached, or automatically taking profits at your price objectives.
Next: The Sixth Cardinal Mistake: Averaging a Loss
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