How To Avoid Huge Trading Losses

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In this post I will discuss some points on how to avoid huge trading losses that most traders suffer almost everyday.

Forcing Yourself To Trade:

This is a BIG Mistake. How many times you have forced yourself into a trade and lost huge money? I am sure many times. And why you do that? To make money or to lose money? If you are losing money then why you force yourself to trade?

Stop Forcing Yourself To Trade

You are in control of trading – neither brokers nor tip providers (if you are taking tips and wasting your money) are forcing you to trade then why you do that on the first place?

The market will do what most people will do. I mean if on a certain time there are more buyers than sellers then markets will go up, but if there are more sellers than buyers, then markets will go down. That’s the reason you see ups and down in Nifty in a single trading day.

You do not have control over the stock markets but you have control over your finances. So focus on your trades and control it. Taking a trading decision itself is as important as doing the trade. If your research is not complete do not trade.
Try to keep your stop losses to half or less of your profits. Read this article to know more.

Do Not Show Ego To Stock Markets

When we do something wrong as humans we are not willing to admit. We try to prove ourselves right next time and increase our trading capacity thereby increasing our risk. By increasing the risk we forget that losses can also increase. But we only think about the profits not losses. The result is obvious. More loss.

Our ego is a huge barrier to success in trading.

So how do you not show ego to stock markets? Do not increase your risk capacity to do revenge trading. You mat end up losing more money.

Do Not Trade With Money You Cannot Afford To Lose

You must trade with money that you do not need for at least next 6 months else you will be forced to make money and you will trade in panic.

Trading in Fear Results In Losses

Imagine your fingers tumbling while putting a trade. Do you think you will ever make a profit?

When you trade with money you cannot afford to lose you will stop out as soon as you see a loss. MTM (Mark to Margin) is almost guaranteed in every trade. In fear when you see MTM you will take a stop loss. Now combine 10-20 small stop loss + brokerages. This is a huge loss.

Trading losses SHOULD NOT Effect Your Net Worth

Do Not Add Money To A Losing Position

This is a very common practice among traders. In hope of a recovery they add trades to a losing position to average out and come out as a winner.

This is a Trading Blunder

The longer you are in a losing a trade, the bigger will be your losses. Therefore instead of averaging out and increasing the risk you must stop out of the trade. If you average out you will end up taking an even bigger loss.

It should be the other way round – you should be adding positions when a trade is going in your favor.

Plan Your Trades Well – Stop Loss and Profit Target Must Be Known Before Taking The Trade

I think the sub-heading is self sufficient. Most traders decide stop loss and profit booking but when they see a trade not going in their favor or even going in their favor they change their plan. This results in huge losses and small profits. This is very common among traders all around the world.

I hope the above post will help you reduce your trading losses.

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