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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

Why Traders Give Back Profits After Winning Streaks

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By in Forex Trading Articles by Nial Fuller Last updated on | 39 Comments

giving-money-back-moneyHow many times have you hit a big winning trade or a series of winners and shortly thereafter given all the profits back and probably even more? I don’t know about you, but this scenario was one I found myself in more than once early on in my trading career, so I know just how frustrating it can be.

Continue reading to find out what I discovered about why traders give back profits and how to put an end to it once and for all…

The psychology of why you are giving back profits…

Whilst there is probably a number of reasons you are giving back your trading profits again and again, there is one thing they all have in common: Recency Effect.

Recency Effect is a psychological phenomenon that describes how people are more likely to remember and act in accordance with events that happened more recently, compared to those that came before. It sounds like it’s just human nature, and it is, but as traders, we need to understand the profound implications the recency effect has on us, if we let.

When a trader focuses too heavily on his or her most recent trading results, it causes them to lose focus and perspective. In trading, it is EXTREMELY easy to become overly-influenced by our most recent trade(s), and this can cause us to do all kinds of stupid things.

Recency Effect is the root cause of why traders give back their profits again and again. The main reason it causes traders to give back profits, is by giving them a false sense of confidence about their trading abilities…

False-confidence: An enemy in disguise

When we become overly-affected by our most recent trades (recency effect), it typically manifests itself by feeling a false sense of confidence.

For example, a beginning trader might get lucky and start out doing very well, hitting a string of three straight winners, which is entirely possible even if they don’t know what they’re doing. Now, let’s say the market conditions at the time of the winners were “easy” conditions; very strongly trending, easy to quickly profit in. Next, let’s say the market conditions change suddenly but that trader just keeps trading because they are feeling very confident following the ‘easy money’ they’ve just made. A lack of education, understanding and trading skill, combined with this false-confidence cause the trader to keep trading, but now the trader loses all the money they made on their three winners.

This type of situation is very common and nearly every trader experiences it at some point. False-confidence will make you feel like you’re smarter than you are, like you have some trading ‘gift’ that ‘other people just don’t have’. Well, you probably do not have such a gift (it’s rare), and when you are feeling like you do, it’s a warning sign you’re about to lose some money to the market.

The key to overcoming Recency Effect and false-confidence, is by remembering that thinking in probabilities is the key to lasting trading success. In other words, we are trading probabilities, not certainties in the market, and every trade is unique and independent from the previous one; so, your previous trade result has no influence on your next trade’s. This is how you have to think if you want to get in the proper trading mindset. It is when you start assigning too much importance to your more recent trades that you lose sight of your trading plan and long-term trading goals and start losing money regularly.

Cold, hard, cash.

There is nothing more real than cold, hard, cash in your hands. The feel and smell is something that creates a sensory connection and as a result, an emotional and psychological one as well. This is quite a bit different than what happens when you are simply staring at digits on a computer screen.

What is my point you ask?

When we never touch our trading money, specifically the profits we make from trades, it becomes an intangible and thus insignificant thing to us. In short, we care less about it.

What easier way to give back your trading profits than if you don’t care about them? I guarantee you if you held $500 cash in your hands and another trader walked up to you and tried grabbing it from you, you would probably punch them in the face, right? But, when that same $500 is on your computer screen and you can’t see who is taking it from you, you simply shrug and feel a little upset at the loss, and maybe chuck another $500 in your account.

Do you see the problem here?

Here’s the solution: Each month, if you made money trading, even if it was $10 profit, WITHDRAWAL SOME IF IT, and go get that amount out of an ATM or from your bank. Set that cash on your trading desk or put it in a jar where you can easily get to it. Take it out once a week, play with it, smell it, whatever. Realize that it’s REAL money and that you really don’t want to lose it! Now, trade in-line with that feeling. In other words, trade defensively, in order to preserve your trading capital, because THAT is how you survive and eventually thrive in the world of trading.

Conclusion

Unnecessarily giving back trading profits is probably the most frustrating part of trading and If allowed to spiral out of control, can trigger an avalanche of trading mistakes that eventually lead you to blowing out your account.

By sharing these insights it is my hope that you avoid a situation where you have grown your trading account and then proceed to lose all your profits. The mental aspect of this event can do long term damage to a traders confidence. It can be hard to recover both mentally and financially from such an event, so it’s very important traders are prepared.

After working with my students over the past decade the most common trait that I see bring down a trader is ‘over confidence’ after they experience a winning period. I encourage people to remain humble and treat each trade and each day the same as they did all those before. There is no room for egos in the market, nor is there any room for hot headed traders who feel the need to prove the market wrong, usually trading erratically to claw back losses or stubbornly holding losing positions.

Helping traders understand what problems they will run into and offering them concrete solutions on how to deal with them is something I cover in my professional trading course.

I WOULD LOVE TO HEAR YOUR COMMENTS & STORIES BELOW :)

QUESTIONS ? – CONTACT ME HERE

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
  1. Dmitriy September 16, 2019 at 1:57 pm

    Thanks a lot, Nial!
    That was a truly beautiful lesson!

    Reply
  2. Sunday September 14, 2019 at 9:53 pm

    what to know more about risk management
    if I want to risk 1$ on a pair what will be my lot size and pip value to set as a Stop loss

    Reply
  3. Zinnur June 2, 2019 at 4:34 am

    Important lesson. Thanks

    Reply
  4. Благодарность October 30, 2018 at 3:47 am

    Magnificent article

    Reply
  5. Rahmat February 26, 2018 at 7:36 pm

    Almost every articles content and language from Nial are really giving positive effects including this one.
    So thank you Nial.

    Reply
  6. Olawa February 18, 2018 at 1:01 am

    Nial is my preferred Forex mentor anyday

    Reply
  7. DERRICK February 16, 2018 at 12:54 am

    all i can say is thank you so much

    Reply
  8. Tha Mathabzo Zulu February 15, 2018 at 8:15 pm

    Thank Nial

    Reply
  9. Duncan February 15, 2018 at 6:29 pm

    Thanks Nial;

    This was a great post which actually helped me rephrase my thoughts after my losses.

    I am still not very profitable at this stage but every time I lose, I look back to see what I could have done better and learn to minimize my losses maybe exit at a small profit rather than a loss!!

    However; after having read this, I also now appreciate the fact that losses are a part of it as well and I feel less discouraged before taking the next trade than before. Things sometimes are easier said than done – true – but after reading these guidelines, I learn a lot and appreciate it heaps. I am learning a lot and the best part of it is that I am enjoying it.

    Thanks for spending the time to post such valuable guidance!

    Duncan

    Reply
  10. Peter Miller February 15, 2018 at 2:46 pm

    Another good lesson. As they say ” life is what you make it “and that goes for trading also, think before you act and know that never one day (or life is ) is the same as the last one, so treat as Nial says each trade as a new beginning. Thanks .

    Reply
  11. rudra February 15, 2018 at 6:24 am

    good one sir

    Reply
  12. Khesiwe February 15, 2018 at 2:14 am

    Excellent article pactice makes perfect I’m going to practice every advice in this article thanks Nial

    Reply
  13. Winston Roy Longbottom February 15, 2018 at 12:01 am

    Thanks Nial, I for one admit that I was influenced by previous success and could not see the next trade through that; I was brought back to reality with some quick losses, however I puuled my thoughts together and looked at my next trade with confidence and considered every possible angle before taking it and I am now back on track. This article has since reassured me of that fact and I must disregard any previous trade before attempting the next. Your articles help keep sanity in the trading game and also leads to further success. Many Thanks. Winston

    Reply
  14. farzad February 14, 2018 at 8:50 pm

    Every word in this article is like gold…

    Thanks AGAIN Nial.

    Reply
  15. Olamide February 14, 2018 at 2:03 am

    Thanks Nial. That’s reminds me of a trade some years ago before I quit trading. I bought EUR/USD on $0.05 lots with $20 risk and i made a profit of $183 on that trade so that winning recency bias got into my head and I felt overconfident, then i went ahead to trade $0.10 lots on my next two trades and I lost both. That’s how I gave back the profit I made from that EUR/USD to the market. Fear start to catch me then I reduce my lots to $0.01 which definitely reduced my profit that I would have make on some trade. Though I just came back to the market since two or three years ago that I quit but am still using demo account to test my trading strategies before trying to come back live. Thanks once more.

    Reply
  16. Wandera Moses February 13, 2018 at 8:50 pm

    Nial thx for this one also. i have improved alot in trading just by reading your articles. thx alot

    Reply
  17. ampurirag February 13, 2018 at 6:09 pm

    Excellent and timely. Thanks Nial.

    Reply
  18. Seiso February 13, 2018 at 1:44 pm

    Typical of Nial’s mail’s. I am not in anyway surprised to find this post hitting the nail on the head as it does and so timely as well. I always find Nial’s post as informing, factual and educating like this one. Thanks to Nial, from now I am no longer going to be enslaved to my last trade’s results.

    Reply
  19. Colin February 13, 2018 at 10:31 am

    Thanks for the trading insight. Particularly about training our brains to behave properly.

    Reply
  20. Hettie van der Vyver February 13, 2018 at 5:12 am

    this makes sense!!

    Reply
  21. Thoko February 13, 2018 at 5:09 am

    Well I am a true novice,I have not started trading yet. If I understand well briefly you say if one is a trader one must bury the past.That is my motto
    So I feel l Iam going to do well.

    Reply
  22. Wasantha February 13, 2018 at 4:45 am

    This article explains what happened when I first started trading forex. After reading many of Nial,s writings on the subject of trading I feel that I am expanded in my knowledge and confident about my trading decisions.I really appreciate Nial,s works,

    Reply
  23. kris February 13, 2018 at 2:59 am

    i noticed today after one loosing trade that it can’t reflect, the other running trades .
    After that i checked my emails and i saw your email as first .I have read it and then it was like you would heard what i sayd before It was simmilar to :

    If you just lost, it has no bearing on the fact that your next trade might be a winner.
    If you just won, it has no bearing on the fact that your next trade might be a loser.

    thank you for your work .
    traders mindset ..

    have a nice day.

    Reply

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