Tuesday, February 28, 2012

How To Avoid Taking Profits Too Quickly And Staying With Losing Trades Too Long

Just read this article by trading instructor Richard Krivo.

Every trader is guilty of this and I for one am one of the biggest culprits of this losing mentality. Somehow I just can't seem to shake it off as well as I think I can.

Anyway, to cut the long story short, here are 3 points to note from that article (I'm posting it here because I'm trying to remind myself!).

(1) Acknowledge that you WILL have losing trades

"If a trade moves against you, as a trader you need to be willing to accept that loss just as you are willing to accept the winning trades. Since you are trading with risk capital, money that you can afford to lose, a trader must be OK with that loss as it will not affect their life style one tiny bit. Losses are simply a part of trading.

(If you are not trading with risk capital, stop trading!)

Once a trader accepts that concept, they will be more inclined to let a trade “play out” and not jump at the chance to lock in a tiny bit of profit or become distraught as a trade begins to move against them and close out the position."

(2) Be certain that you are taking higher probability trades

When a trader knows that they are trading a pair that is in a strong trend, they will have the courage of their conviction to be able to “stick with the trade” as it is in a strong trend. (This does not mean that sticking with a trade in the direction of the trend will insure a winning trade. It does mean, however, that you will be taking trades that have a greater potential for success.)

Once you have decided on the higher probability pair you will trade and know where you will place your initial stop and limit, when the trade executes…leave it alone! Promise yourself that you will only let the trade limit out or be stopped out.

(3) Follow the principles of money management

So when the losing trades occur, your losses will be small and manageable.

Now to practice what I've just blogged.

Happy trading people!!!

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