If you’re hoping to be a quality trader, then you’re going to lose money at some point, and just in case you’re still within the path of attempting to avoid all losing trades and looking for a “Holy-grail” trading system with a high winning rate, you have to remove all that thought without delay. As hard as it might sound, losing is a component of winning as a trader; the two go hand in hand. If you don’t discover how to lose properly you may never create consistent income as a trader.
All professional traders lose their money, and that they understand it’s simply a part of the “game”. Sadly, for several traders, each trade they enter is in the middle of an incredible concern of losing money and typically intense emotional attachment.
Major factors why traders become scared as to losing their money may associate with the following:
1. They don’t perceive that mathematically, over a series of trades, a trader will lose a majority of their trades and still be profitable.
2. They’re just too terrified of losing money normally.
3. They are trading positions that are too massive (risking over what ought to be), inflicting concern upon themselves, sleepless nights and large emotional swings.
Fear of losing capital may be a sensible feeling to possess in several areas of life, if we tend to not have it there would be even additional problem in the world and within the forex markets. Humans are always protective of their wealth and property, and justifiably so because they labored for it.
In trading however, this normal behavior to be defensive and emotional with cash has to be reworked and defined into a unique mental state.
Instead of being terrified of losing your money once trading, embrace the management you’ve got on every trade; a trader has complete management over each trade via stop losses and lot sizing. These risk management tools are your approach of being up to speed with your funds, and rather than being “fearful” regarding losing cash, you ought to feel confident and assured. As a result, you’ll predetermine what amount you’re comfortable with probably losing BEFORE you enter a trade by utilizing these money management tools.
However, simply employing these tools to manage your risk per trade isn’t quite enough to all take away the concern of losing.
If you’re trading your hard-earned money in the markets however, and you don’t grasp what your trading edge is and you don’t have 100% confidence in your ability to understand and trade the markets, you most likely shouldn’t be trading. One amongst the largest reasons traders become afraid to lose their trading capital is as a result of they aren’t assured in their own ability to trade. It appears silly though, however it’s terribly true. Several traders merely don’t have an effective trading strategy, they don’t have a trading set up. They merely aren’t ready to risk real cash within the markets yet, thus they feel concern after they trade.
If you don’t grasp what your per-trade risk tolerance is, then you would like to work that out initially. It’s simply the dollar amount that you’re 100% confident with probably losing on any trade; because you can lose on any trade, remember that. You have to require into consideration your overall financial state of affairs in order to verify what amount of money you ought to realistically and honestly risk in the market on any one trade. Be honest with yourself here. You need to think about yourself as a risk manager and as somebody who is managing capital, instead of simply a smart guy looking to play lucky; your trading attitude can directly influence your trading results.
Even profitable traders generally lose more than they win, for instance, imagine a trading account of 15 trades which over a given period has made a ROI of 80% with a 43% win rate. To be clear, which means you’re losing 57% of all trades and simply winning 43% of them. It may be senseless to associate “losing” the bulk of your trades with making huge profits; however maximizing the profitable trades to the fullest would allow the few winning trades to recover the managed (small) losses from the numerous losing trades.