Why I Am Losing? Anatomy Of A Bad Trade!
You will always lose trades. You see, as a technical trader when you try to use technical indicators with precisions, your number of trades become severely limited. Experienced trader knows this fact that the ratio of the winning trades has a diminishing return. What this means is that a trader with a few losers will make more profit as compared to a trader who is always looking for the perfect chart patterns. So every trader will make losing trades. What is more important is to lower this ration of losing trades.
So when you make a losing trade, what you need is an anatomy of the losing trade so that you know there is nothing wrong with your trading strategy. What can be the reasons for a losing trade? The most important reasons can be: 1) Bad entry, 2) Bad Stop Loss Value, 3) Bad Profit Limit Value and 4) Breaking News.
Let's analyze each of these factors to see how they can make you lose your trade. There are many reasons for a bad entry. The most obvious and easy reason can be you clicking the buy button when you wanted to click the sell or the other way round. Yeah, this happens with the experienced traders as well. This can happen due to distraction or fatigue on the part of the trader. You might enter the wrong number of lots that you want to trade. So don't try to hurry in a trade. Make a checklist and always use it before entering a trade.
There is always a tension between your need to limit your losses and the market's need to move up and down most of the time for no apparent reason. If you try to limit your losses too tight, the market may constantly throw you out of your trade. So you never know, you will have to learn the art of constantly moving your stops. Another way is to not use static stop losses rather go for a dynamic stops.
The last common reason of making a bad trade is trying to be greedy with a big profit margin. You want to make good profit from trading. This is what everyone wants. But the markets cannot be dictated. You cannot tell the market, hey, give me this profit. Markets don't listen. What you need to learn over time is to take what market gives you without grumbling. What good traders do, they avoid the markets when they are in a bad mood. So, someday the market may be offering you a good chance, grab it and make a good profit. The other day, market maybe in a bad mood. Just take what the market gives you. Then the last reason for a bad trade is sudden breaking news. You cannot do anything about it. This is something out of your control. When there is a sudden breaking news, you don't know how the market will react. Simply stay out of the market!
by: Ahmad Hassam
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