The Importance of Losing when Trading

In real estate the three most important things to an investor are location, location, location. In trading the three most important things are: money management, timing your exits and timing your entries; in that order. More important than how much you make on a trade is how little you lose on the losses. When you are looking for a place to exit a trade you want to consider a location that will not cost too much. Think of how much you will lose before you think of how much you will make. A losing position should be exited as soon as they have reached your worst-case scenario. By staying in a trade so you don’t lose money is not the way to make money. For a pip saved is a pip earned. Learning how to lose correctly is one of the most important things a trader can do. It is important to know how to hold on to a good trade. But if you do not know how to get out of a bad trade you will not go very far as a trader. If you are properly capitalized no one trade will take out your account. Sticking to trading with a stop loss is critical because a small loss does not mean very much but a large loss can end your trading career both financially and emotionally.

Every trader needs to understand that losing is different from a loss. All traders have lots of little losses because that is part of trading. It is when you have little losses turn into large losses is when you have lost. Once a trader knows it is normal to lose then it is easier to get out of bad trades. Even if you are a poor trader you will have some good trades. And you will have a chance at success if you learn to cut your losses short. The skill comes when you can cut a bad trade but still let the market have a chance to work so you can capture the good trade.

A trade needs to have time to develop. But a trade needs to be closed when you know you are wrong. A good exit strategy combines knowing when to hold em and knowing when to fold em.