It's almost of common knowledge that the Golden rule (or I should say Goldum rule to stick to TLofT language) of trading is to "cut your losses short and let your profits run" and the more I gain trading experience, the more I firmly agree this principle. Paradoxically, it's extremely difficult to follow and this because it goes against our human nature that leads us, though a mechanism involving fear, hope and greed, to buy when we should sell and sell when we should buy. For me, the easy part of the principle is the "cut your losses" thing : having an automatic stop loss, committing never to move it down and not re-entering the same position just after you have been stopped do perfectly the trick. Actually I'd say I even have a tendency to cut my losses too early and before the stop loss is triggerred, for instance that's how I missed the move on the Cable from 1.65 to 1.43 this year (hey it's a 2000+ pips move missed!) short at around 1.61 and cut a bit higher before it dropped...


To me and I suspect it's broadly shared, the "let your profit run" part is far more difficult, even using a trailing stop system... I can't tell how many times I ignored myself the rule and took a profit way too early only because of the fear to see my (small) profits vanish. And the thing that makes this rule hard to follow is actually most of the time, the profits do vanish. I believe being profitable requires the patience (and the faith in your system) to suffer a lot of small losses and wait for the few winners that will ultimately put you in the positive area... and that's far from easy. The only trick I've found to let the profit run may seem not that helpful : you find it easier to sit on a profitable position when that position shows a huge profit... Well, thanks Sauros, old chap.

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