How Professional Traders Handle their Trading Losses
It has been reported by the NFA that more than 90% of all retail accounts opened with $10,000 are closed within a year because the traders who opened them have lost the majority of their money. That is surely a sad statistic but one that has been pretty steady over the years. That proves that beginner traders are not hearing that or think it will not apply to them. It applies to every trader out there and not controlling losses eats most traders alive pretty quickly. There are many people and courses out there that promise to make us very consistent and profitable very quickly. That is so far away from the truth. Some people are not emotionally built or ready to trade just like not all of us can be actors or NBA stars either. We need a lot of help to become successful traders. Many people think they can read a book or watch a video and learn to trade against the rest of the world’s traders which includes the best ones too. The trader’s pool has no shallow end while you learn. We all swim in the same ocean. Our account size and emotional structure determines whether we are sharks or feeder fish in the pool. It takes a few years to master the art of trading. Traders need a solid foundation and discover their own trading talents. Once a trader has found a particular way to trade he needs to master the tools of his trade. The smaller the account, the lesser the room there is for errors. And in trading you need to leave room for plenty of errors without being pressured while doing it.
Traders can take the pressure off them by expanding winning runs and shortening losing runs. Good traders always limit their losses and reward themselves when they have a really nice day. Say if a trader risks $100 to $150 per contract per trade then he should have a reward at least twice that while picking trades. This way if a trader has a risk to reward ratio of 1:2 then he can be right 50% of the time and be a very successful trader in the long run. It is always nice to decide before you take a trade if it is going to be too expensive for your account. If so, it is best to pass it along as there will always be another opportunity around the corner. This way you know what you are paying to get what you want. This way if you lose you have less stress as you were prepared to pay that anyway and if you win you get not only what you risked but more as you target twice what you risk.
It is also important to plan on what you plan on losing the most on a trade or a given trading day. It is also nice to plan on how many losing trades a day are allowed in total or consecutively and whether they can be in the same or either direction. If you lose then you want some limits to stop you at some point as it means you might need an emotional or physical break at that point. Never violate the rules you have written in your trading plan and if you find yourself doing so then it might be time for a break. On the other side of the coin you must also plan on your winning trades. Say if you are up a certain amount then you stop trading for the day. Same applies to weekly and monthly goals. If you make your weekly or monthly goal before the end of the week or month it is a good idea to take the rest of the week or month off. After all trading is hard work, especially mentally. So if a trader has a nice big unexpected chunk of profit it is always a good idea to take it and run away as there are many traders that get greedy and think they can get more and wind up with a much smaller profit or worse a small loss and a bad memory about how they should have, could have or would have rather than a sweet memory about their best trading day ever. And after such a roller coaster event if they decide to trade more then it could turn out to be a losing day or even worse by becoming an emotional scar that could ruin their trading career forever.
It could take several weeks to plan your trades around a business plan but will pay itself very well in the long run. Always keep your plan around where you can see it while trading. ALWAYS PLAN YOUR TRADE AND TRADE YOUR PLAN. It is always a good idea to walk away from trading if you break any of your rules. This will increase your confidence in trading and yourself. If you love to trade you might feel horrible to walk away from it initially as you broke your own rules but it will save you a lot of money and emotional damage in the long run. There is nothing out there that indicates you might be a trader someday in the future when you are born. To become a truly profitable and consistent trader you must learn in depth about the market you choose to trade and even more important is to learn more about your own emotional self first. Good luck with your trading.