As a trader you’ve have probably been told many times not to yield to your emotions. It is, however, much easier to remain calm and professional when dealing with a series of successful deals than when losing. A lot of investors believe learning how to lose is the single most important skill you as a trader can ever acquire.
Nobody is immune to losing. Good trades lose, too (sometimes quite a lot). But in the end of the day good traders earn more than they lose. Trading is rarely about constantly winning. Rather it is two steps forward, one step back. As long as you keep your average loss smaller than an average win you are good to go.
If you have a negative position that makes you uncomfortable don’t be afraid to get out of it, as it is always possible to get back in. Your unwillingness to close a position, that is going against you, can deplete your account in no time. In other words, remember to cut losses.
In order to keep up with the previous point, take advantage of a stop-loss. Not only it is a great way of setting a specific level of loss you are willing to take, it is also a great tool to automate your trading activities. Even if you do not use stop-loss orders, decide when to get out (should the trend turn against you) even before you open the deal.
When trading instruments with no set profitability (Forex, CFD etc.) learn how to maintain a positive record by winning less than 50% of your trades. Sounds strange — and for some even impossible — yet it still can be done. The abovementioned is hard to achieve if on average you lose and win approximately the same amount of money. However, as soon as you let your profits grow and cut losses at the same time, this is much easier to achieve. Keep your losses small, do not exit a profitable deal prematurely and you are quite likely to be in the green by winning 20% to 30% of your deals. Even if you win in 60% of the deals, you and your trading systems should be prepared to an unexpected loss streak.
Indeed, losing right is more important than winning right. Winning deals don’t matter until you manage to get consistent results, which is only possible when you know how to control the risk. Learn how to tame it and watch your trading results improve dramatically.
