Learn how to lose properly to achieve long term success in trading
Obviously, no one likes to lose when it comes to investment or trading. The true successful trader has mastered the way to handle losing trades and how to lose properly.
No matter how good you are as a retail trader, losing trade is unavoidable. You can probably delay it but eventually, in your trading career, you will have to lose a trade. Instead of avoiding it and finding the best strategy with no losing trade (if it even exists), it is easier to learn how to lose.
Below explain how Beginner vs Professional treat losses.
1. Mentality on losing trade
Beginner: Do the best to avoid losing trade, it is bad and negative things to happen.
Professional: It is part of trading. The business of trading is Total Winning Amount – Total Losing Amount – Brokerage Fee = Net Profit.
2. When encounter losing trade
Beginner: Frustrated, anger, emotional.
Professional: Check if they following the rule, move on for the next trade
Here are a few steps where a trader can master the skill.
Step 1: Change your mentality
The very first step is to change your mentality or thinking toward losing trade. If you cannot accept having losing trade is part of the business. Most likely you will take it too personally and struggle to handle your emotion whenever losing trade happens.
Step 2: Trade small
Start to trade small lot sizes while you are learning. Trading small not only allow you to survive during the unexpected situation but it also eases your emotion when you have a losing trade. Losing 10% to 20% in a single trade normally will lead you to lots of emotion which ends up you unable to focus on your strategy and stay in the business.
Step 3: Follow your trading strategy
Way too often beginner trader tends to focus too many strategies and got confused. There is nothing wrong with a trader having multiple trading strategies, however, they just tend to practice trading with multiple strategies too early. A new trader should focus on one strategy and get good at it. This way it is easier to benchmark the strategy and to improve on the strategy.
Trading is difficult due to most people fail to handle it during losing trade. Losing money is what most people fear. Ironically, the only way to succeed in trading is to manage the losing trade and when you do have a winning trade come in, it will offset those losing trade.