Being stuck in a cycle of losing trades is difficult because it plays with your mind as it drains your wallet. Yes, it is definitely frustrating, even when you’ve done your research, done the back testing with demos and market simulators, and sometimes a bad run is difficult to recover from. Don’t compound the problem! We’re going to list five things that you should never do when you have a losing trade.
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Double or nothing
You’ve probably heard the term “double or nothing” – that’s when you double your initial investment to risk the chance of recovering your initial loss or losing it all. In essence, you’re pulling a Martingale – or simply put tossing a coin; heads you win, tails you lose.
The terrible logic, especially when it comes to your money is that if you believe you are doubling your money after a loss, you are kidding yourself. The basic rule is never to trade with anything you cannot afford to lose. If you keep doubling down on a losing trade, you’re really not gaining anything to strengthen or build your portfolio. You’d be lucky to break even. Instead, break the cycle.
Let’s put it another way: if you lose 50% of your capital, you’ll need to make 100% of your current balance to get back to break even – and that doesn’t include any transaction fees. Don’t dig a deeper hole for yourself. Sometimes it’s best to walk away.
Hit Me Again
Being on a losing trend can prompt us all to resort to irrational behavior. Here is a common situation. Let’s say you’ve entered a trade based on a pretty solid trend following tried methodology, but the market suddenly comes into a range and your stop loss activates. The trend continues and now you decide to enter the trade again, this time without reassessing the current market conditions. Before you know it, you’re chasing the market up.
At this point, there’s a good possibility that you’ve been emotionally compromised. You’ve broken the rule about never falling in love with a trade or commodity and now you’re paying for it – literally!
Get some distance and find that cool, analytical head of yours again. Re-evaluate your position and try again.
Changing Bias for no Other Reason
Beginner traders often find themselves switching bias on the fly, and not considering the how probable a trade direction is. They would enter a trade going long and suddenly exit and turn to the short route.
As a professional trader, you should have a back-tested strategy that shows the probability of a setup hitting its target with an excellent reward to risk ratio (2x).
Traders should be aware of such negative behaviors as this can put you in a recursive loop of losses till you dry up your trading account.
Dig In With that Setup
A losing trade on a thoroughly back-tested setup does not mean you should stop trading the setup. As long as proper risk and money management strategies are deployed, then you should stay consistent with your trading.
Having 15 to 20 losing trades in a row… Really? Common sense would dictate that you don’t let that string of losses continue, but it happens. This should be a clear indication that your strategy needs to be tweaked. Don’t leave everything to automation. Pay attention to your trades and market trends.
Now, if you’ve only had one or two losses, this doesn’t mean you need to reject your whole setup. Keep an eye on it and fine tune it.
Revenge Trading
Guess what? If you’re revenge trading then not only are you expending excess energy, but the market doesn’t care about your losses. So, you didn’t get the price you wanted or your order wasn’t fulfilled but now you’re going to keep trading to spite…who?
Think about it – the only one you’re hurting is you. Let’s say you encounter a huge loss while trading altcoins. Most traders want to go back into the same market and take more long trades on their preferred crypto pair, even when the market shows no sign of a bullish trend recovery – but you do it anyway because you’re feeling spiteful? That doesn’t make any sense.
The common denominator with reacting to a losing trade is the emotional aspect. If you’re too attached, you are bound to be disappointed. The key is to be impartial to the point of being nearly indifferent. If you’re trading with a responsible ratio of your money, then a loss here or there is just par for the course. But when those losses become a habit, that means something’s got to change. Start with mindset and if you find yourself practicing any of these five no-no’s then stop, reassess and try again.
Disclaimer
Content provided by CryptoTraderNews is for informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice. All information is of a general nature. As always, there is risk with any investment. In exchange for using our products and services, you agree not to hold CryptoTraderNews Pro, its affiliates, or any third party service provider liable for any possible claim for damages arising from decisions you make based on information made available to you through our services.
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