One of the toughest thing to do for any trader, novice or professional is to accept losses and take the losses. Lot of the time, we have this tendency to hang on to the losses that somehow, just somehow, things would turn around and we can then get out at break even. And to further add fuel to the fire, occasionally, we find that after holding even after huge losses, sometimes the trade turns around and it comes back to our price and helps us get out at break even. Or most of the time, what happens is that we get out of a trade with huge losses only to see the price turn around and come right back to our price making us feel ‘if only i had held for just 50 more pips !!’…sigh….
Though, on the face of it, the above 2 scenarious point to the situation where you might feel that it is good to hold on to losing trades, lets consider these points. Usually, when we hold on to losing trades, it most probably means that our system and strategy has gone for a toss, our money management is all screwed up and in effect, we are no longer in control of the trade. We allow our drawdown to pile up, the loss is way more than the stop loss. What this does is that it stops us taking other trades, either because we dont have the money due to large drawdown or we are simply too focussed on getting out of the losing trade that we dont see obvious setups or we are too scared that we might increase our losses by taking more trades and hence refrain from taking trades.
So, the losing trade not only makes us lose a lot of money but also stops us taking trades which could have given us some easy money. We could have simply cut our losses at say, 100 pips or so and easily made that amount by taking 2-3 good trades in a couple of days rather than hold on to the drawdown, lose good trades and finally lose on this trade as well.
Then comes the emotional content where we sit on the computer for long hours hoping and praying that things would somehow turn around increasing the pressure on us and making us a nervous wreck. Believe me, its not worth it. Trading is meant to be simple, easy and straightforward if you do it the right way. Just stick to your system that works, no matter what, take losses, as they are a integral part of trading and that will go a great way in making you a much better trader and a successful one at that. It saves you a lot of money and a lot of tension if you take your losses. It might sound a bit contradictory but try it…It Works !!
I do run a signal service with has a very highly unique offer which creates a win-win situation for all. If you are interested, please contact me through twitter or email (firstname.lastname@example.org).
Do follow me on twitter (http://twitter.com/ns_karthik ) where i post some of my trades in real time.
Winner’s Edge Trading, as seen on: