The context is a losing position, probably a big one. Whether the right thing to do is to exit with the current loss, or let it continue to run in the hope that the market will turn around.
The following extract from Larry Hite, a prolific Future trader, inspired the question.
I once worked for a firm where the company president, a very nice guy, hired an option trader who was brilliant, but not very stable. One day the option trader disappeared, leaving the firm stuck with a losing position. The president was not a trader, and he sought my advice.
'Larry, what do you think I should do?'
I told him, 'just get out of the position.'
Instead, he decided to hold on to the trade. The loss got a little worse, but then the market came back, and he liquidated the position at a small profit.
After the incident, I told a friend who worked at the same firm. 'Bob, we are going to have to find another job.'
'Why?' he asked.
I answered, 'We worked for a man who has just found himself in the middle of a mine field, and what he did was close his eyes and walk through it. He now thinks that whenever you are in the middle of a mine field, the proper technique is to close your eyes and go forward.'
Less than one year later... this same man had gone through all of the firm's capital.
The ideas from the above extract makes me rethink over what many traders are tempted to do in a losing position: wait for the market to turn around to exit a losing position at break even price or a small profit, but at the same time risking running into a bigger losing position. What is your opinion on this matter as a trader?
The following extract from Larry Hite, a prolific Future trader, inspired the question.
I once worked for a firm where the company president, a very nice guy, hired an option trader who was brilliant, but not very stable. One day the option trader disappeared, leaving the firm stuck with a losing position. The president was not a trader, and he sought my advice.
'Larry, what do you think I should do?'
I told him, 'just get out of the position.'
Instead, he decided to hold on to the trade. The loss got a little worse, but then the market came back, and he liquidated the position at a small profit.
After the incident, I told a friend who worked at the same firm. 'Bob, we are going to have to find another job.'
'Why?' he asked.
I answered, 'We worked for a man who has just found himself in the middle of a mine field, and what he did was close his eyes and walk through it. He now thinks that whenever you are in the middle of a mine field, the proper technique is to close your eyes and go forward.'
Less than one year later... this same man had gone through all of the firm's capital.
The ideas from the above extract makes me rethink over what many traders are tempted to do in a losing position: wait for the market to turn around to exit a losing position at break even price or a small profit, but at the same time risking running into a bigger losing position. What is your opinion on this matter as a trader?
'For the market to work, it needs people who think that they can beat it.'