How To Always Close a Position In Profits
Trading is a game of winning & losing. Most of the amateur traders focus on the winning part of their trading skills. However, we can agree that the losing part is almost as important.
The question of what to do when a trade starts to be a loser one raises debates.
In this article, we will go through one common mistake beginners do when taking trades, how you can step-up your profits by having optimized targets and change your way of taking profits. Finally, we will teach you how to recover from a Losing Trade.
One of the beginners’ most common mistakes is to focus on the winning part of the trading process. Learn everything to make the best profits is excellent, but you cannot keep up the rhythm if you do not learn how to lose.
The essential rule in trading is to control your losses and not let yourself be overtaken by events. This will usually make the difference between a losing trader and a winning trader in the short, medium, and especially long term.
Taking a loss is often more painful narcissistically than it is for our portfolio. Indeed, this is where psychology takes its full place. Trading is perhaps the only activity where we have in real-time the consequences of our choices.
Therefore many traders will lose everything by not giving in by remaining inflexible towards the market. Taking their losses would be wrong, and being wrong would break the image they have of themselves, it would hurt their ideal of the Self, their Ego.
There is no mystery. It is necessary to work on yourself and your losses. You must, therefore, accept to lose and to be wrong. When you get to that point, the acceptance of losing, respecting your stop, and your Trading Plan is much more comfortable.
You will know you have made considerable progress the day you take a loss and do not question what you think of yourself. The same goes for profits. More than becoming “rich”, trading can be the way to become a more balanced and more accomplished man.
Why Trade With a Profit Target?
Setting up a Profit Target to get out of a trade allows you to calculate the Risk/Reward ratio. Just as important, you need to put a stop-loss. Ideally, the potential reward outweighs the risk encountered.
Before entering a trade, you will never know if it will be a winner one or a losing one, but you will have an overall profit if your winning trades are more significant than your losing trades.
The positive aspects of using profit targets are:
The downside aspects of using profit targets are:
Have you ever been in the situation when after taking a trade, the price goes in the right direction, but a brutal reversal candle stops you out in the end?
Trailing Stop Tutorial
Recovering A Losing Trade
You might face many situations where you will have to deal with losing trades while not being prepared. If you are an amateur trader, going through losing trades can be frightening, and you might not know how to react.
Common mistakes may lead you to uncomfortable situations:
– No forecast of possible losses
– No stop loss
– Bad Risk Management
– Emotional Trading
If you are confronted with this kind of losing trade, you have three possible choices:
A. Close the trade and do Nothing
When facing a poorly managed trade, the most reasonable option is sometimes to take the loss, have a break, and move on. This process must become a lesson for you. Of course, this might be a costly lesson, but the best lessons you can learn for trading are the ones you are experiencing.
B. Wait and do Nothing
While the best solution for a beginner is to close the trade and do nothing, an advanced trader can also re-evaluate the situation. He will proceed to a technical or/and fundamental analysis and take a second approach to his trade. Selling his position would be relevant only if he thinks the price will go lower.
You might be careful using this technique because already being in a position will create a Cognitive Bias in your mind. If you want to make sure you are not biased, close the position, take a 5 to 15 minutes break, and then make your analysis again to determine if you should enter a new trade based on this analysis, or not.
C. Acting – Double Down Recovery
While Closing the trade is the most “risk-less” reaction to have, Acting and use the Double Down Recovery System is a technique you should not use if you do not have good skills in Risk Management.
Doubling down is a strategy used to lower the average entry and quickly reusing from a losing trade.
For example, I have bought 1 Bitcoin at $10,000, and the market is now trading at $9,000. This results in a $1,000 unrealized loss.
Instead of closing the position in loss, I will buy 2 Bitcoin at $9,000. Loss is still $1,000, but my average entry price is now $9,333. The recovery will now be quicker if the market reverses.
This technique is risky and should be attempted only if the risks are understood.
Using this technique in a ranging market works the best. It might look like a grid trading system, but manually, where you average the best entry to eliminate the risk of missing the sideways moves.
On the other hand, this technique can be used in a strong trend market, but only by averaging within the market’s same direction.
Be careful! To use the Double Down Recovery System, you need to put set yourself a limit where you will not average anymore and take the loss! It is not uncommon to see extreme moves in the cryptocurrency markets, and this technique does not always work!
Moreover, when averaging down, you must not do it at random levels, you must choose tactical levels.
Realizing losses while trading is mandatory and part of the game. Trying to achieve a success rate of 100% is not your priority. You first need to learn to apply your risk management strategy and trading plan.
We have seen some techniques to try hacking the market, but do not rely on them for your mistakes. It can burn harder than just taking a loss and move on.