The failure to cut losses short revisited

Futures offer much greater leverage than stocks or bonds. Only trading currencies on the Forex can provide still even greater leverage. While this enormous leverage can be very risky in the hands of unskilled traders, this somehow has not prevented wannabe traders from flocking to e-mini futures or Forex.

E-mini futures contracts, to those new to this subject, or simply e-minis, are smaller-sized contracts of full futures contracts that have been around for decades. E-minis have always been traded electronically, allowing retail traders with access to the Internet to compete against institutional traders from the comfort of their homes or home based offices.

Trading e-minis is not easy, although it can be mastered given enough time and dedication. The basic trading rules apply here just as they do for trading stocks or bonds, but due to the enormous leverage following these rules here is even more important than in stocks or else it's very easy to end up blowing one's trading account in no time.

One of such rules insists that you "let your profits run". Another urges you to "cut your losses short." Both make a lot of sense and when combined, they give rise to much more intelligent trading.

Let us discuss the latter here as it seems to be of even more importance than the former. This is so because ignoring this rule is a sure path to ending up with a totally depleted account relatively quickly when trading e-mini futures.

Yet, this rule is often violated despite the grave consequences that doing so entails. One can wonder why it is so. Let us now address this issue here as that is not always done in an exhaustive, comprehensive manner.

There is no doubt that trader's ego is involved in this process. Most humans, traders being no exception, do not like to admit that they have made a mistake, so they would rather wait for things to somehow get worked out in their favor while they adjust their stop-loss and keep going deeper into the red zone. This is often no more than wishful thinking that masquerades as eternal hope. Yes, it is true that to be a good trader one has to be an optimist, but one also has to be a realist and be self-disciplined. Violating basic rules of trading is hardly a sign of solid self-discipline.

But there is also another reason why overriding this rule often takes place. At the core here seems to be the lack of confidence in one's trading methods. This is what can also make the trader to hold to his losing position because he does not believe that he will be able to get a better trading opportunity. Had he believed a much better opportunity is likely to present itself while he is stuck with his loser, he would have cut it short much faster.

The moral from the last observation is this: if you are considering trading e-mini futures or any other market, for that matter, you want to make sure you have a good solid strategy that you trust as this can only help you to cut your losses short.