We’ve all asked this question. Should I stay at the party a bit longer? Should I wait and see if the Cleveland Browns might possibly (by some miracle) pull this game out? (NO!)
But I bet it never occurred to you that this is really the central question of trading. It’s the exit that makes the trade and every exit – winner or loser – demands an answer to the question of should I wait for this to get better? “Letting your winners run” is a case of waiting for this to get better. Giving a loser a bit more time to turn around is waiting for it to get better.
Judgment and decision research now knows that we are always predicting a feeling when we are deciding. We may think we are analyzing and we probably are but underneath that analysis is an expected feeling. In trading we think in terms of more or less profits and that induces strong feelings.
We don’t remember that we are really only asking should I stay or should I go? Should I wait for more reward or take what I have? Intentionally asking oneself this in trading can make the decision easier – and possibly better. This “Choice Architecture” can help with impatience and fear by unconsciously deescalating the import of the whole situation.
It may sound too simple. Try it and let me know. It’s like taking red off the screen. Everyone complains and then sends emails or tweets about how much it helped.