Are You Losing Money in Trades? (It is a GOOD THING!)
Panic buying and selling to avoid any possible chance of loss is quite common among stock traders; the new ones in particular. And this is the single most important ingredient in their failure.
Yes, nobody likes to sustain loss. In the mix of infatuated success stories of overnight millionaires, we all want to make high profits out of every trade. Right? But here are some sour facts that very few people would have ever told you before— one, you will not make big money from every trade that you enter; two, even if it was possible, it won’t be profitable.
Losing money in trading isn’t a bad thing. If looked closely, with your analytical glasses, you would realize that it is, in fact, a good thing. If you want to have a better grip over your analysis skills, you can learn technical analysis online by opting for a well-designed stock trading course.
Lose More, Earn More
Net profit and cumulative losses share a positive relationship. While you may be experiencing increasing losses, your net profit will still be on its path to new heights. But this is only possible if your trading method has positive expectancy. Expectancy is the difference between two products with your win rate, which is calculated by deducting the product of odds of winning and average win amount from the product of odds of losing and average loss amount.
Learn To Take “Successful” Losses
Small cumulative losses continue to pump up your long-term net profit. These losses, in many ways, are what investment is to business. Just like a setting up a company requires financial capital, building a sustainable and high-yielding portfolio requires small losses.
So it is imperative that you keep off the cognitive biases at bay and train your mind to accept losses Because not only the losses are imminent, they are also imperative.
The Exception Though…
There is an exception behind the ‘the more you lose, the more you earn’ theory. While it’s good, losses must have a threshold level to prevent the risk of ruin. Meaning, there must be a solid stop-loss position, that’s identified after applying technical analysis and money management model, to avoid what was supposed to be harmless losses from ruining your trading account.
An account is basically ruins once the loss crosses a threshold level and your account falls beyond a certain limit that you cannot make any more trades.
Accept losses with open arms. Because at the end of the day, it is not the panic buying and selling that will make you rich, it is the loss that will do the trick for you. The stock market learning process makes you a pro at stock trading with time, so watch your moves with care!