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.
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.
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.
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.
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