Losing Trades Happen, Keep Them Small!

One of the biggest challenges that come along with trading is learning to accept losing trades. It can be a constant battle…should you take the loss gracefully and follow your original trade plan or cancel your stop-loss order and hope the price begins to move back in your favor?

Trust me, I’ve had a lot of trouble in the past accepting losing trades, especially when I was just beginning to learn about the stock market and how to trade. One tip that I have for you is to USE A HARD STOP LOSS ORDER. What do I mean by this?

I believe it is important to enter your stop order into your trading system instead of using a “mental stop-loss”. I’ve been guilty of using a mental stop loss in the past when I was first starting out…how did it work out for me? Horribly!

Let me explain:

This is how it would go: I would have a trading plan in my mind. I knew before entering the trade where my exit price (for a small loss) would be if the stock decided to move against me. I would use a “mental stop” and then,  guess what…when the stock got to my “mental stop” I had trouble clicking the sell button!

So, at first, maybe I was down $50, now I’m down $70, now $100…I would begin to HOPE & PRAY that the price would go back to my break-even point and when it didn’t I would take a loss much larger than what I had planned.
This is the DANGEROUS CYCLE that can occur when you are not disciplined when using a “mental stop”. My recommendation for beginners is to ALWAYS use a HARD STOP. Enter your stop-loss order into your trading platform to take the emotions out of the entire trade. As you gain more experience & discipline you can move to a mental stop loss later if you wish.

Remember, trading is a marathon, not a sprint. The key is to remain disciplined by cutting your losing trades quickly and not letting them spin out of control. If you can learn to keep your losing trades small, your winning trades will easily outweigh your losing trades as long as you have strategies and a system in place.

Take a look at the image below. Notice I had 1 losing trades but I kept it small. This allowed my winning trades to easily outweigh my losing trades.

Don’t allow losing trades to discourage you! It’s just part of the game of trading and investing.