The Four-Fold Path to Reducing Trade Losses
80% of the people who get into financial markets drop out because it’s either too difficult for them to understand or because they have made huge losses.
The technical bit of trading, like applying indicators, customising charts, following companies and commodities, comes much later. There are certain things about the market that you should know before you put all your money into trading. The fundamentals of trading, the basic things that can cause you major losses forcing you to drop out of trading. And you don’t want drop out of trading, because as long as you have some money, you can always recover the losses, but if you have nothing to ride on, losses become unbearable so you must never run out of money.
After studying the markets for a while, what we can tell you for sure is that there are at least 4 sure ways of thinking which if applied correctly will help you reduce your losses.
- Analysis is an Art, not a Science.
Analysis, be it fundamental or technical, is an art. Every candle plots a story during its journey in a particular period and we need to understand their journey to tell us the story about how the markets are moving. Once you read it like a story, you become the part of that journey and flow like a wave with the chart movements.
2. Keep it Simple.
Financial Markets can be very difficult to master, to avoid complexities we suggest you try to keep it as simplified as possible for you to understand. Break down your requirements into what you want to do, how you want to do it, understand the goals you want to achieve with trading. This will give you the clarity for trading and taking tough trading decisions.
3. Be Open-Minded.
Sometimes you do everything right but the markets respond in unusual ways and move very unpredictably. Do not get attached to your trades and investments. Don’t hold a bad trade when the markets are not moving in your favour hoping it will get better. This can lead to huge losses. If the trades are not making you money as expected then get rid of them before running out of money so you have some left to make more money via other trades.
4. Use STOP LOSS.
There is no one strategy to make profits and eliminate losses in the markets. You could make a lot of money slowly steadily in a month and lose all of it in one day because of small mistakes or negligence. Overconfidence can be dangerous, hence always use Stop Loss to cut your losses short. Holding bad trades will keep you from moving ahead in other trades. Make it a rule to not trade without have your stop-loss set.
It might take you some time initially to get into these trading habits but they will always help you on your trading journey. Just like we avoid running into other vehicles and structures while driving and end up driving safely, if we avoid certain negligent practices while trading we end up making profits in trading. As while driving we still hit some potholes and bad patches which cause us discomfort during our ride, we also face some rough patches in trading. The only thing is, with caution, awareness and expertise it all becomes but an adventure in our very exciting trading journeys. And as always, we end up with experiences which help us to trade better.
Hope this clears some doubts you had about markets.
Happy Trading :)
