This weekend we’re discussing losses.
Trades coming against you is part of this game, but how you manage those situations can be what separates the profitable from the frustrated!
Position sizing, allowing for time, and mindset are all things we have control of as traders. Whether or not you use those to your advantage or disadvantage is up to you.
Still, there will be losing trades, so what do you do when a trade goes against you?
In this game, how you start is an important contributor to winning or losing.
Before you pull the trigger, make sure you properly position size. Proper position sizing takes care of a lot of problems. I typically like to risk about 2.5% to 5% of my account (net liquidating value) per trade. If you do this properly, you guard against digging yourself into a hole.
As a swing trader, I’m a big fan of giving my trades time, especially when shorting a volatile market. If you properly position size and a trade starts to move against you, then the trade in the short-term isn’t the end of the world. You also still have time to make up for it.
What we don’t want to do is sit and watch the market bounce against us. We look for clean setups and take action. One trade may be in the hole, but we can make moves that end up as profitable trades… That way we can make money on the upside (and vice versa if the market flips again).
Trading is a game of probabilities. We have to come to the reality as a trader that not all our trades will be winners.
We can be the top traders in the game and with a 70% win rate – if we are taking 100 trades – we can still expect 30 of our trades to be losses. The game plan is not all about avoiding losing trades, it’s about putting yourself in a position that if something moves against you, it isn’t catastrophic.
Position size appropriately, have a probabilistic mindset, and give your swing trades plenty of time. And in the meantime, enjoy the game of trading.
Stay Focused!