One of the biggest mistakes that most novice traders make is not stopping out of a trade when it goes against them. Unfortunately, most novice traders and sometimes even experienced traders struggle with stopping out of a trade. Instead, they seem to just hold on to a losing trade despite it just continuing into a bigger loss. Eventually, they will sometimes get a margin call and get forced to close the position or add more funds to the account to keep the losing position. This is not a strategy for success in the trading business.
The first thing that any trader must realize is that it is OK to lose on a trade once in a while. Believe it or not, nobody wins on every trade. It is basically impossible to do on a consistent basis. I prefer to use a pivot point on the chart as my stop loss. If you cannot find a good pivot point to use as a stop loss then just use a 10 percent max loss on any swing trade. This rule was adopted by the legendary trader Jesse Livermore. When he followed this rule he said he had the most success in the business. Unfortunately, when he broke the rule he took massive losses and fell into depression. Remember, we all need to be able to sleep at night when trading. We all want to remain healthy and have a clear mind. Big trading losses are not good for anyone and can even affect someone’s health.
The way I look at a loss in a trade is as a learning experience. Somewhere along the line I read the chart wrong or perhaps even had a little bad luck. We are human after all, we make mistakes, nobody is perfect. The key to a losing trade is to simply learn from it. I must say that I have never learned from a winning trade. I have only learned from my losing trades in the stock market. So while nobody likes to lose we must turn the negative into a positive and try and learn why the trade failed. These lessons from the losing trade will help keep you from repeating the same mistake again. Now that is progress in the long run. Remember, the trading business is a marathon not a sprint. Learn from your losing trades.
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