How to Manage Losing Trades ?
It is important to analyze and think about keeping it up with losses. Whenever something strikes us, we must survive the mood that might take us down and disturb in further work.
In trading, it is common to run on a losing streak not just once, but from time to time. Nobody was ever trading who hasn’t come across a period of bad outcomes with their business. Therefore, preparations for such events that will surely occur if you trade long enough. Statistics show that when you have a good run of 60% winnings in a certain period, you will most definitely have four consecutive fails 2.5% of the time. In the same situation of your streak, if the market sees changes, and you come to a point where you start losing, the chance to come across four consecutive losses is about 6%.
Fact 1: DO not risk more than 3%-5% per equity
Therefore, you have to make sure to have covered so that leverage won’t produce losses that would ruin your account.
In a situation from which we take this story, where a trader lost 17% of his equity in three days, the facts were this: S&P 500 had the average expanded for the day’s high/low range with not many days exceeding 2%. That tells us that only by trading instruments with high volatility or with high leverage he could have losers for three consecutive days.
How to be prepared: this is one way – defining the maximum loss that you are willing to accept in a year. For example, if you decide that you are ready to risk 20% for a year in order to make 30%, it means that with an increments at 5% when you get close to the limit of 20%, you scale back trading risk, as you see you are not trading well. Doing that proactively, you shouldn’t get in a position to clear up your whole account.
This plan enables you to trade with a set limit for your daily loss. If you see that you will easily lose your 20%, you don’t trade more than 1% of your capital per day.
When you trade so heavily that a series of losses would clear up your account, that is “risk of ruin” trading. Unless you don’t have an edge in the market, it is risk of ruin.
You have to run your risk management well and calculate with what capital you can work daily.
Otherwise, this sort of thing can happen that you lose almost the fifth of your capital in only 3 days. It is a real deal, and a serious issue.
Fact 2: Make trading plan – are you short time trader or long time trader ?
Mistakes that new traders make that kick them out of the business sooner than they wished or thought. Mistakes that are of mathematical nature don’t necessarily cause big problems, because those mistakes are obvious, but personality mistakes are more difficult to overwhelm.
Another problem is considering only wins and thinking that it is going well, while ignoring losses as if the losses (in that amount) are something normal. It is not normal for the business to have so many bad trades.
A problem when a trader uses a system that doesn’t bring them what they want, for example, a trader who prefers quick trades shouldn’t invest in long term. That may confuse the trader and make him switch to another system if he sees a series of losses. Because his instincts are designed for short term investing, he will wrongly develop a system for long term investing. Always make sure before a trade that you have it all planned, and that you can anticipate both turnouts (good or bad). But regardless of that, you must place all things right considering what sort of trade you are doing, and until you are satisfied with all elements, don’t place the trade.
Generally, being afraid of series of losses in a good trading system and being unaware of an edge is wrong as well and it leads to losses – big losses.
Taking business to your heart might make you seem like a passionate worker, but that doesn’t necessarily make you a successful one. It is nice to enjoy the job you do, but as putting business before pleasure is a must, imagine what is with putting business before worries?
How I manage losing trades :
Rule 1 : I risk 1% per trade and I have between 1 till 3 max opening positions. SO I can not lose more than 3%. When I move stop loss to breakevan (risk=0%) I can open more trades.
Rule 2 : If my trading price is below Monday low I will not open buy orders for that forex pair in that week.No counter trades for me.
Rule 3: If I see that my is losing trade but trade is not reach stop loss yet I ask myself : “Would you entered this trade you do not have any open position?” If my answer is ” yes” than I will stay in open trade and if my answer is “no” than I will close opened trade.
Rule 4: If I see 4 losing trades in a row – something is not OK. Either my stop loss is not calculated as well or I am on wrong side of trend or I am in some crazy consolidation.Than I stop trading, make analysis and I am waiting new week for trading.
Rule 5: If my trade is positive and excellent and in one moment, very fast price go to entry level – something is not OK. I am against momentum and I will close trade and wait to see what is happen.
Rule 6: If I trade long term (using daily and weekly charts) and I see that my position is losing one – I will wait Friday to see Friday price close. If price is far away from weekly open (strong bullish/bearish daily candle), I will close trade and wait for better position to enter.Weekly close is important.
Conclusion : Mistakes that almost every beginner in trading makes
Losing money while adapting to certain market stage occurs if a trader is at the same time trying to decide whether they are more prepared to trade on long term or short term market. It is ok to explore certain things in trading with real money, and loose some while doing it, but entering the market for real without preparation for real isn’t good because then you don’t know if you are „learning“ from mistakes or if you are MAKING the mistakes as a „full learned“ trader – which you are not, of course. The point is that you should know when to trade with awareness that outcome might not be in your favor.
Being unaware of markets’ limits is the greatest limit for your progress. As there are many paths, ways, possibilities, outcomes, methods, times, places and any aspects of the market in the market, about it and around it, you might not know everything about all these things. Now, if you are aware of that, you are in a good position to cautiously invest in spheres of the market that you are not good at. If you limit the market with your knowledge about it, than you are only opening holes in the wall of your fortress. As the market is a changing terrain, you must always be aware of its movements, because that is the major aspect of knowing about the market; not just what the market can do to you, but what it DOES to you. This is important because you actually work NOW and not in the history of the market. You don’t need past charts and broad theory about the market to know what to do today, where to trade and how much to invest and where, those things are just a map around the market. What you need is information about present situation. When you have a map, you know where the things are, but to know where to go, you need to know where you are and maybe where you want to go.