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Avoiding Losses in Trading

I had an interesting conversation with a developing trader about avoiding losses in forex trading. After discussing the subject with them for a few mins, I realized there seems to be a great misunderstanding about trading and losses. This is not surprising as there is a lot of sophomore information out there about these A+ setups, that good setups only occur on higher time frames, that you should only take these high quality signals.  But this misses an essential point of trading and something that all professional traders understand.

avoiding losses in forex trading 2ndskiesforex.com

The A+ Setups Myth
Beginning traders try to ‘avoid losses’ by waiting for these ‘A+ setups, trading like a sniper stuff‘. This is a big reason why they fail to make money. To trade successfully, you have to trade and think in probabilities. You cannot ‘avoid’ losses in forex trading. This fear, this rationalization & desire to avoid the inevitable, actually takes you away from a system that has an edge and understanding what is a high quality signal.

A great example of this is how a beginning trader wants to ‘avoid’ a loss by waiting for some perfect setup, as if trading is a fashion contest.  They fear losing and thus rationalize not trading this setup which may have a lesser probability hit rate. But here is where  so many beginning traders go wrong and what you want to avoid.

Understand What An Edge Is
If a system has a 33% win rate, this may seem low, but if it always hits a 4x target, (e.g. you risk 50 pips to get 200), then this system has an ‘edge’ and makes money over time. By waiting for these ‘A+ setups‘ and trying to ‘trade like a sniper‘, you avoid the trade because it is not A+ or high probability.

What this actually does is separate you from a system that is profitable over time, that has a mathematical edge, and makes money. Yet if you ‘avoid’ this trade because you want to ‘avoid losses’, then you are passing up a profitable equity curve which could provide consistent profits over time. It is critical to understand your edge, and trade it when it presents an opportunity.

trading with an edge chris capre 2ndskiesforex.com

But here is another crucial point about this topic.

You cannot ‘avoid’ losses at all in trading. Losses are part of the forex trading game. They are something you will have to get comfortable with, and not identify with, or value yourself based on the latest win or loss.  Trading is really about getting comfortable with yourself, and getting comfortable with losses. They are going to happen just like the sun will rise and set.

Avoid the Misconception, Not Losses
Trying to ‘avoid’ that which is unavoidable will create a limiting belief in your head that only interferes with your trading. Understand that in reality, losses get you closer to your next win as you let the edge play out.

Don’t pass up an edge/system which makes money, simply to avoid the fear and psychological discomfort of the loss (which is really up to you how you experience them). Don’t fall for this ‘A+ setup, trade like a sniper motto‘, which is really a misunderstanding of trading professionally, and a sophomore understanding of it at best. So time to start thinking about trading on a new level, and avoiding the misconceptions about trading, not the losses.

trading on a new level chris capre 2ndskiesforex.com avoiding losses

If anything, you should avoid the mistake of thinking you can avoid losses, by only waiting for these magical A+ setups.

There is really nothing to avoid in trading, which is more about getting comfortable with uncertainty, and understanding losses are part of the game. When you start to do this, you will find yourself taking trades less personally, and executing with greater discipline, lesser emotions, and a clearer perspective on the what it is to trade professionally.

9 thoughts on “Avoiding Losses in Trading”

  1. Thomas (@tradingthomas)

    Hi chris,
    Been following your post and as newbie this one really sticks out being i always try to avoid losses in trading and wait for those A+ setup. .. i guess this article got me thinking

    1. Hello Thomas,
      We cannot avoid losses. They are a part of the game we are married to. Ironically in trying to avoid losses, we miss winning trades, and insulate ourselves with the illusion these A+ setups will protect us from losses, when in fact they can lose just the same.
      Make sure to check out the companion article on ‘Trading and Thinking in Probabilities’ which further expounds on this topic.
      But glad to hear I got you thinking.
      Kind Regards,
      Chris Capre

  2. Hi Chris, just wanted to ask if round numbers act as support and resistance and if yes what pairs respond most to them.

    1. Hello Juggy,
      Sometimes they work, but not enough for me to bet the farm on it. Instead, I used pure price action to determine how and where the market will respond.
      When you get good at this, you do not need to rely too much on round numbers and can simply trade the price action as it is.
      Kind Regards,
      Chris Capre

  3. hello, so what your article mean is that theres no perfect entry. i believe you took the phrase “trade like a sniper crap” from someone else. i appreciate your work. but i dont appreciate condeming other peoples work

    1. Hello Gold,
      Is that your real name?
      I think there is some confusion here;
      1) I am not saying there is or is not a perfect entry. This is a misunderstanding of what I am saying – which is to not get fixated on looking for some perfect entry as this misses the mathematics of trading and applying an edge.
      2) I believe the person you are thinking of actually stole the idea from another person (John Netto) who actually is a former sniper that became a trader – and came up with the phrase. You can find a link to that person here (http://www.amazon.com/One-Shot-Kill-Trading/dp/0071427945) where if you look at the authors bio – you’ll see their Marine Sniper background that the person you are thinking of as creating the phrase – has actually admitted they took their inspiration from in their early days.
      So in reality – the work you think is of one person, actually is a derivative (and thus copy) of another.
      Kind Regards,
      Chris Capre

  4. Hi Chris,
    Another fine article as usual! I have been self employed in an industry for many years that requires Ins, Fuel etc,etc as daily costs of doing business. I think this gives me a perspective that helps with the losses. Lately I have developed an attitude that spreads and losses are like a toll collected by the gate keeper of the market. As odd as it sounds it seems to remove the negative aspect of both the spread and a loss. Even those that seem to just defy you jump in your face when you just “Knew” it was a good trade.

  5. Hi Chris,I follow your every writeup,however wanted to ask if”Elliot wave is the holy grail in trading” as I have heard its very accurate. Pls reply.

    1. Hello Sanj,
      Thanks for the positive comments.
      As to EW – no, it is not the holy grail by any means. I never use it and do quite well without as it has too many subjective rules.
      Hope this helps.
      Kind Regards,
      Chris Capre

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