Trading Losses and How to Prevent Them from Occurring

Every trader has experienced losses in their trading account. The first few months or years of a trader's career should be spent on containing losses as much as identifying opportunities and maximizing gains.  I am not speaking of the first loss or the small loss, but the continuous string of losses or a single devastating loss.  

As an advanced trader I remind myself daily:

A stop loss order is my body armor. Taking manageable losses will not hurt me. Losses are part of the game, EVERY day.


For novices, taking stop losses are part of the learning experience. There is only one major rule a novice should have in mind, revert back to paper trading if a certain maximum % loss is exceeded. For whatever reason, external or internal, there is something amiss. Don't take more losses to figure out what is wrong. Plus, mental focus may be insufficient, so taking some time off allows for a mind to reset. Paper trading consistency should be at 60% winning trades or greater before attempting to trade real money again.

Once you have become a breakeven-profitable trader, then you still have to be diligent about limiting losses. At this point in the game, it is easier to self-reflect on why losses are happening. Besides having made an incorrect trade determination, here are a list of reasons on why traders set themselves up for making losing trades by not being in the trading zone. 

1. Mentally unprepared, less than optimal mindset.  
2. Not recognizing stress.  Not seeking stress relief.
3. Environment is uncomfortable or bothersome.
4. Relationship struggle or unresolved conflict.
5. Inadequate sleep.   Late wake up.
6. Not taking breaks throughout the day.
7. Failure to maintain a relaxed but confident state.
8. Poor health and/or lack of aerobic conditioning.
9. Inadequate record keeping.  Not reviewing trades.
10. No maximum daily loss limit amount.
11. No maximum # of sequential losing trades limit.
12. Not acknowledging or owning up to a loss.
13. Lack of social interaction.
14. Poor diet, excess caffeine and/or sugar intake.
15. Excessive research and/or studying.
16. Catastrophic personal loss. (death, divorce...)
17. Overconfidence after large profit(s).
18. Revenge trading, trying to make back a loss.
19. Not following daily routine.
20. Unscheduled intrusion by others.
21. Harboring feelings of trader remorse.
22. Over-exposure to opinions of others, including social media, Twitter, CNBC, etc.
23. Basing self worth on trading performance.

This is just a brief list of conditions which predicate losses when trading.

I will expand on this in my book, Trading Secrets from a Market Maker Trader.

Please leave comments.

© 1 Trader and jcspe85.blog.com, 2015.