Of ten losing traders, at least seven are losing because they held onto their positions. This issue of holding onto positions is a long-standing problem in trading losses. Almost every time the market moves significantly, friends come to me complaining about their severe losses from holding positions.
It is widespread; many holders of positions suffer severe losses and stubbornly refuse to change. Today, I will discuss several reasons why people hold onto positions and how to deal with this issue.
There are five common reasons that lead to holding onto positions:
1: Issues with market trends; there are many false trends.
Most market movements are oscillating; prices rise and fall. If a position incurs losses and the trader does not cut losses but holds on, they may lose less during the oscillation and even turn losses into profits if the market reverses.
There are also many false breakouts. When the market breaks, it's time to cut losses. However, if the market recovers, positions that were supposed to be stopped out can turn into profits.
With more experiences like this, people are reluctant to cut losses. They endure for the tangible financial benefits, and everyone prefers to hold onto their positions.
2: Aversion to loss.
No one wants to lose; loss brings a lot of insecurity. It is our nature to be averse to loss. The pain we feel from losing 1000 yuan in a failed trade is much greater than the joy of earning 1000 yuan in a successful trade. This makes us naturally reluctant to face losses, hoping that prices will rebound, and we repeatedly tell ourselves, 'Just break even, and then I’ll exit,' always expecting the day when losses turn into profits.
3: The pride of not wanting to admit mistakes.
Many traders often have strong confidence in their judgments and a strong sense of pride in trading. They feel that cutting losses means admitting they were wrong and believe the market will eventually return to their expected direction. They think they just need to hold on a bit longer. Sometimes they even share their positions and outlook with others. When facing losses, they are reluctant to cut losses for the sake of pride and continue to hold on.
4: Emotional trading.
Initially, I was bullish on the trend, but after making a few long positions, I was stopped out by a downward market, which left me in a daze. Emotionally charged, I started to resist the market; if it’s going down, I feel bullish. I refuse to believe it won’t retrace. As a result, holding on led to severe losses, and I had to accept the reality.
5: Lack of experience and planning.
Most traders do not consider stop-losses before opening positions, have no trading plan, and lack comprehensive technical standards for taking profits and cutting losses. All position openings and closings are based on feelings. Initially, they might laugh when their positions go underwater, but as losses deepen, they start thinking about stopping losses, by which point it’s already too late. Eventually, they just let it go, reasoning that since they have already lost so much, they might as well wait it out, hoping for a recovery. In the end, the more they hold, the greater the losses become, and they are unable to cut losses at all.
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