Absolute Top

To Win You Must Lose

Trading is not gamblingA common myth with trading is that you have to be right to be rich. No one wants to be a loser – and admitting to losing trades can feel that way to the uninitiated.

In truth, losing plays a major part in winning – but it’s how you lose that’s important.

The essence of successful trading is money management. It’s about keeping your risk as small as possible. This proves to be true if you day, swing or position trade.

Even if you’re teaching yourself and have little market experience you need to stay in the game long enough to hone your skills and strategies. And, as your experience grows, you come to realise that testing new positions with little exposure – then adding to your trade as momentum grows – is the surest way to stress-free profits.

DT Tip: Keeping your risk small is not the same thing as having close stops. The market needs room to breathe. Lower the amount per pip/point to accommodate a wider stop.

As a technical trend trader I can never be certain when entering a new position if it will be profitable – or by how much. The analysis and set-up can be textbook, but the market will do what it will do – I have no control over that part of my trading.

More often than not, despite the steps I put in place to avoid it, many breakouts will not materialise. My entry order will sit patiently with my broker until eventually market conditions dictate the set-up is no longer valid.

Another ‘popular’ market move is for price to trigger me into a trade before promptly reversing and stopping me out.

This is closely followed by being triggered, price pulling back to stop me out – but then continuing in the original direction. This is the bane of a trader’s life – being right but getting the timing wrong.

Finally, and definitely the minority, is being triggered into a successful – and profitable – trade. On the (relatively) rare occasions this happens it’s all-hands-on-deck as I add frequent small, but significant, positions as momentum grows.

DT Tip: Each trade you take should be a very small percentage of your account. Most guides recommend up to 3% a trade but I think this is way too high. A 1% maximum is far better. If you are learning you will make mistakes and your account will deplete at too fast a rate. And if you are experienced and you wait for the markets to move, you may want to enter multiple trades within the space of a few hours or day – to keep your total exposure low and allow you to take more opportunities each trade should be 0.5% or lower. If your initial account size is small then choose a broker who offers a micro account so you are trading a very small amount per pip/point.

This year, 2014, has been a poor year (so far) for longer-term trend traders in the Forex market. Opportunities have been few and far between, and quality has been limited.

By staying out of the markets I have not frittered my account away on lost causes. Standing aside can be more frustrating than taking loses at times – the phrase “you have to be in it to win it” springs to mind. But there’s little point in being in a game that’s rigged against you – and attempting to trade consolidating markets is definitely of that eke.

To me, trading is about taking educated, small risks on multiple trades then squeezing the most out of the few good trends that I manage to pick up early and then ride to the end.

A closing interesting note on losing trades is that my final trade on a successful trend sequence will always be a loser. As you can never tell how long a trend will last you have to keep the faith until price tells you otherwise. Yes, I know there are many theorists out there who claim to be able to tell when a trend has come to an end. But getting out at the top of a trend is as difficult as getting in at the bottom – there is little point in chasing the holy grail. So I keep trading the trend until my last position fails.

Paradoxically, therefore, you can’t be a winner WITHOUT being a loser.

Good trend trading…

Anne Chapman

Trackbacks/Pingbacks

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