Locking in profit early feels right and costs money

[Fairman]

Locking in profit early feels right and costs money

The disposition effect shows up everywhere: people sell winners too soon and hold losers too long. Scalpers do it constantly.

A trade reaches a profit of two pips with a target of four. The temptation to take the two is strong. The gain is real, the target is uncertain. Over many trades, though, systematically cutting winners at half the planned size shrinks the average win while the average loss stays put.

The result is a strategy with a win rate that looks better and an expectancy that looks worse.

The test is simple. Look at the trades closed early and see what price did afterwards. If more than half went on to reach the original target, the habit is costing money.

Rules that help are fixed targets, partial exits at predetermined levels, and no manual closing unless a specific condition is met.

What did price do after the last twenty trades that were closed early by hand?