For beginners| Avoid losses and save your trading capital
Hello everyone, today I decided to share with you another educational idea, today talk about how to avoid losses and save your trading deposit.
Have you ever heard the saying “if you don’t spend, it’s the same as what you earn”? In other words, you need to strive to save your money. And it's hard to argue with that. However, this idea goes far beyond your savings account at the bank. It can also be applied to how you manage your trading account.
The idea of "did not spend - it's the same as earned" can be expressed in the words "did not receive a loss - it means that I made a profit." While it refers to a minimalist approach to trading, it also highlights the importance of avoiding losses.
Non-standard approach
Guys, I will give you two simple examples for a general understanding!
If I asked you why you became a trader, most likely you would answer: “I started trading to make money” or even “I would like to get rich through trading.” Most likely, you will not answer this question in the following way: "I started trading so as not to lose my money" or "I started trading on the stock exchange so as not to become poor." Feel the difference?
Both last answers may sound a bit ridiculous. However, in my opinion they are much more appropriate than the first.
Don't get me wrong, wanting to be rich is normal. If you want to make a lot of money, that's great. But if this is your only goal in trading, then you are doomed to failure.
The reason is simple. When you open a new trade, you focus on how much money this position will add to your account. It's human psychology to think about the reward, not the risk. However, this is a completely wrong approach.
If you want to stay in trading for a long time, first of all you must understand how much you will lose if the market goes against you. A defensive mindset will not only help you stay out of trouble, but will ultimately help you increase your trading account size.
The numbers don't lie
The best way to demonstrate the negative consequences of losing trades is to illustrate it. The chart below shows the percentage of profit required to compensate for trading losses.
As you can see from the chart above, if your drawdown is 50%, you will need to make a 100% profit to return to your initial deposit size.
Moreover, if you really intend to get out of the drawdown, this can only be done in a consistent and safe way. Simply throwing money into the market in the hope of making up for your recent losses will quickly drive you into an even deeper hole. Any trader who has increased their risk in the hope of recouping recent losses knows this to be true.
A deep drawdown is always very dangerous for your trading account. That's why I practice the "less is more" approach. I also believe that the absence of a position is already a position.
Consider the words of Bill Lipschutz:
If traders stayed out of the market even for 50 percent of the time they trade, they would earn a lot more.
emotional side
Another problem that is associated with losses is emotional damage. Constant losses can make you start to doubt yourself and your abilities as a trader.
If you have been trading for a while, you know that trading psychology is the key to profitable trading. You may have the best strategy in the world, but without emotional resilience, you are doomed to fail.
This brings us to a universal truth - the best way to protect your psychological health as a trader is to avoid unnecessary losses. This is an incredibly obvious statement, yet it is often overlooked.
How can losses be avoided?
Now that you know how devastating trading losses can be, you're probably wondering how you can avoid them.
However, to begin with, you must understand that losses are a necessary part of your trading. You cannot trade in the financial market without loss. However, they should not be viewed as something bad. Instead, treat losses as a necessary learning experience, not a black mark on your ability as a trader. Think of them as business expenses that are a necessary part of your chosen trading strategy.
Here are some easy ways to cut potential losses.
Trade on the daily timeframe
If you're serious about price action trading, the daily time frame should remain your go-to.
Many traders find that lower timeframes provide more trading setups and therefore offer the opportunity to make money faster. However, this is misleading. Quantity does not mean quality.
The daily chart will not only provide clearer trading ideas, but will also help you be more selective about
Have you ever heard the saying “if you don’t spend, it’s the same as what you earn”? In other words, you need to strive to save your money. And it's hard to argue with that. However, this idea goes far beyond your savings account at the bank. It can also be applied to how you manage your trading account.
The idea of "did not spend - it's the same as earned" can be expressed in the words "did not receive a loss - it means that I made a profit." While it refers to a minimalist approach to trading, it also highlights the importance of avoiding losses.
Non-standard approach
Guys, I will give you two simple examples for a general understanding!
If I asked you why you became a trader, most likely you would answer: “I started trading to make money” or even “I would like to get rich through trading.” Most likely, you will not answer this question in the following way: "I started trading so as not to lose my money" or "I started trading on the stock exchange so as not to become poor." Feel the difference?
Both last answers may sound a bit ridiculous. However, in my opinion they are much more appropriate than the first.
Don't get me wrong, wanting to be rich is normal. If you want to make a lot of money, that's great. But if this is your only goal in trading, then you are doomed to failure.
The reason is simple. When you open a new trade, you focus on how much money this position will add to your account. It's human psychology to think about the reward, not the risk. However, this is a completely wrong approach.
If you want to stay in trading for a long time, first of all you must understand how much you will lose if the market goes against you. A defensive mindset will not only help you stay out of trouble, but will ultimately help you increase your trading account size.
The numbers don't lie
The best way to demonstrate the negative consequences of losing trades is to illustrate it. The chart below shows the percentage of profit required to compensate for trading losses.
As you can see from the chart above, if your drawdown is 50%, you will need to make a 100% profit to return to your initial deposit size.
Moreover, if you really intend to get out of the drawdown, this can only be done in a consistent and safe way. Simply throwing money into the market in the hope of making up for your recent losses will quickly drive you into an even deeper hole. Any trader who has increased their risk in the hope of recouping recent losses knows this to be true.
A deep drawdown is always very dangerous for your trading account. That's why I practice the "less is more" approach. I also believe that the absence of a position is already a position.
Consider the words of Bill Lipschutz:
If traders stayed out of the market even for 50 percent of the time they trade, they would earn a lot more.
emotional side
Another problem that is associated with losses is emotional damage. Constant losses can make you start to doubt yourself and your abilities as a trader.
If you have been trading for a while, you know that trading psychology is the key to profitable trading. You may have the best strategy in the world, but without emotional resilience, you are doomed to fail.
This brings us to a universal truth - the best way to protect your psychological health as a trader is to avoid unnecessary losses. This is an incredibly obvious statement, yet it is often overlooked.
How can losses be avoided?
Now that you know how devastating trading losses can be, you're probably wondering how you can avoid them.
However, to begin with, you must understand that losses are a necessary part of your trading. You cannot trade in the financial market without loss. However, they should not be viewed as something bad. Instead, treat losses as a necessary learning experience, not a black mark on your ability as a trader. Think of them as business expenses that are a necessary part of your chosen trading strategy.
Here are some easy ways to cut potential losses.
Trade on the daily timeframe
If you're serious about price action trading, the daily time frame should remain your go-to.
Many traders find that lower timeframes provide more trading setups and therefore offer the opportunity to make money faster. However, this is misleading. Quantity does not mean quality.
The daily chart will not only provide clearer trading ideas, but will also help you be more selective about
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