What To Do With Big Wins

It’s likely that anyone who trades for a while will hit a big win sooner or later. The challenge is knowing how to manage these wins without letting them disrupt your trading approach or lead to future mistakes.

Trading is a game of probabilities, and you might face a string of losses or, conversely, experience a series of wins, some of which could be surprisingly large. For instance, you might buy a stock just before a major takeover bid is announced or hold a short position in a currency that plummets due to unexpected negative news.

Why Big Wins Can Be a Problem?

So why could these unexpected wins be problematic? The issue often boils down to psychology. Much of trading success or failure hinges on a trader’s mindset, not just their technical analysis. Big wins can significantly impact how traders think and make decisions going forward.

Overconfidence Issues

A substantial win can lead to overconfidence, making a trader feel like they’ve cracked the code and are invincible. This mindset can be dangerous, as it may lead to a relaxed approach in evaluating future trades and a tendency to take risks they normally wouldn’t.

Overtrading Risks

Another risk after a big win is the temptation to increase trade sizes significantly. This often stems from overconfidence and the belief that the good fortune will continue. However, trading much larger than usual can quickly erase the gains you’ve made, and even lead to further losses.

Managing Big Wins Effectively

So, what’s the best way to handle unexpected windfalls? First, acknowledge that big wins are part of the trading journey. Most traders will experience them at some point, but it’s essential to remember that they don’t imply a flawless ability to predict the market. It’s important to stay grounded, stick to your trading plan, and adhere to your established criteria for placing trades.

While it might be tempting to increase trade sizes, it’s crucial to do so cautiously. As your account grows, it’s natural to want to take on larger trades, but make sure this aligns with a conservative risk management approach rather than assuming that winning streaks will continue indefinitely. Professional traders typically risk only a small portion of their account on any single trade, so if you decide to increase your trade sizes, ensure it’s within the risk parameters of your trading plan.

In Conclusion

Big wins can be exciting, but they shouldn’t derail your trading strategy. Remember, losses are a natural part of trading. The key is to manage risks carefully and maximize your profits without letting temporary successes cloud your judgment.