Market has not been Kind to Intraday traders from past few days, We are seeing Nifty trading in small range and big moves coming in matter of minutes which most of traders are not able to catch and in the process losing out heavily.
Handling losses is the MOST important quality a trader should develop.Best traders in the world have the ability to handle discomfort in order to control once action and behavior and ability to stick to your trading strategy in both Profitable period and more important during losing streak.Trading is all about how u react to discomfort.
Reader would have observed in their personal trading You hold on to losses too long and gets out of winners too quickly.
Have you ever thought Why is that true?
The average trader will spend twice as much energy avoiding a loss as they will trying to obtain a profit. The reason is that the average trader ego does not want to admit to being wrong.You want to be in comfort zone ie. Never take loss, As taking loss hurts mentally and your bank balance.
Thus, a common error is to hold onto a losing position hoping that it will turn around and thus avoid being wrong on the position. Yes I agree it do happen 5 times out of 10 when your position turn back in green but the times it do not happen its will hurt the most and the sole reason of Blowing off the account. The reason that the average trader sells winners too quickly is that selling a winning position is a sure way to be right instantly and thus it boosts the ego.
Interestingly, both mistakes are products of the ego, and have nothing to with profits or emotions as mostly said except that both mistakes take money out of the trader’s pockets. You must keep losses small and avoid the hoping or praying stage that a loser will come back to breakeven. Breakeven levels are deadly reference points on losers.
Conventional trading wisdom of controlling and eliminating one’s emotions from trading does not work. Quite the contrary, the more we struggle to try and control our feelings, the more our attention is distracted away from our trading, and the more erratic our trading becomes.
As a trader You have to learn to accept your losses, because if you are not willing to take the chance that a trade could lose a predetermined amount, you will be afraid to trade or will be scared out of a good position as soon as you get a small profit. This defeats the goal to score big when you are right. A successful trader’s mindset must accept losses as a necessary and beneficial part of the trading processes when handled properly.
Another vital aspect of knowing when to lose is that you must never give in to the temptation to ride out your losses, which amounts to saying to yourself, “It will come back”. That type of thinking has ruined many traders. In other words, you must have the discipline to always cut your losses or keep them small. This is the main thing that will allow you to say in the game long enough to become successful.