It happens that when opening a deal on the stock exchange, everything may not go according to plan. A red candle appears and it seems that the losses will only grow. Here the trader can succumb to emotions and make a number of rash decisions. What steps can be taken to minimize your losses at such moments? What mistakes do traders make when they start trading? We will talk about all this in this article.
How best to exit a losing trade
You have to realize that you can’t always make a profit from a transaction. Which means sooner or later, you’re gonna have to close a bad deal on the stock market.
Keep an eye on the level of moving losses
When the subsidy starts, you don’t have to close the deal right away. The first thing to do is look at the levels at which the subsidy started. Then decide what are the options for averaging all open positions. You can open a new deal, or you can wait a little while, and at this point, it’s not about profit, it’s about keeping your current balance. There are two different tools that are important to use in the debugging process: Stop Loss and Trailing Stop. You can set the numbers so that the price doesn’t exceed what you expect.
How long can I not close a losing trade?
Transactions usually close when a certain level of profit or loss is reached. But how long can a loss be held? There is such a thing as risk management. So if you look at it, you can keep a problem transaction open until the loss reaches 2-3% of the total deposit amount or 20-30% of all the positions that are traded at that time. In real life, however, few people adhere to these numbers except bots.
There are still a number of points that will make it clear that the deal needs to be closed:
- When the asset price has broken through the support or resistance level, the transaction must be closed.
- When the trades were following the trend and it became clear that it was over, you need to close.
- When the allotted time for a short position is too long, it is also worth closing the deal.
How to avoid a losing position
Often traders can make one big mistake – wait for the price to come back. That is, the trader sees that his deal is beginning to pay off, and instead of closing with minimal losses, he begins to wait for the original value of the asset to be returned. At the same time, forgetting the exchange trading rule – you have to buy and resell, not store assets.
Also, market participants, even when the price is at a loss, continue to stay true to their forecast, thinking that the asset’s value will soon be reversed. By doing so, however, they are only increasing their loss-making position
Engaging in active exchange trading is itself risky, so the right decision is to reduce risk rather than increase it. Therefore, we cannot increase the volume of a loss-making transaction and try to say goodbye to it as soon as possible. Because situations are different and you cannot be 100% sure of your prediction.
How to protect yourself from losing trades
Of course, no one is saying that if you follow these recommendations, you will immediately trade only for profit, but at least you will be a little protected from loss.
- You only have to trade on a pre-arranged strategy. If you open a deal on a hunch, you’re more likely to lose money.
- We should not deviate from the rules of trade. If you see that losses start to rise, you don’t have to wait for a better time to increase the losses, you have to close a bad deal right away.
- Keep in mind risk management. Put Stop Loss or Trailing Stop. And don’t reschedule them if the price approaches their performance.
- We cannot trade without a good analysis of the market situation. It’s better to spend a couple of days keeping tabs and reading analysis than losing your money.
- It’s best to sell assets you’ve been tracking for a long time. Experimenting with assets you know little about is better in a demo account or with a small deposit.
- Follow the news. If there is any information about the asset you want to invest in, then analyze it. Most often, after favorable news, the volatility of the asset starts to rise, but also the price will fluctuate in both directions. That, too, should not be forgotten.
- Don’t be greedy. In addition to Stop Loss, you should also put Take Profit. Because there will be no fixed profit, the value of the asset can be reversed and you will lose money.
Common mistakes of novice traders
At the beginning of their journey, new traders make a number of mistakes and often they are always the same. The most popular of them, we will discuss further.
Start trading without having a plan
A large number of novice traders, both on the traditional and on the cryptocurrency markets, most often start trading without having a plan. Regardless of whether you are going to invest for a long time or you are thinking of making money on trading regularly, a plan is always necessary. Otherwise, all your investments and trading will look like a losing gambling game. The trading plan will give you the opportunity to carry out transactions systematically and deliberately, besides, over time, the efficiency of trading will improve.
Entering the market without having any training
Before you start trading with assets, you need to analyze the charts, as well as monitor price changes. Try yourself in a demo account, where in case of failure, you will not lose anything. You can also start trading in small amounts. There must be at least some understanding of technical analysis. It will be useful for both speculators and investors, who also need to open and close transactions at a favorable asset value.
When a novice trader begins to make a profit from the first transactions, he may get the impression that it is quite easy to earn money in the market. But as you can understand, this is far from the case. It is not uncommon for an investor to mistakenly think that he can profit from almost any price fluctuation. Such self-confidence will certainly lead to the fact that transactions will begin to open without proper market analysis. Everything will get worse when there are unprofitable transactions and the desire to return the lost funds will lead to even greater losses.
You can give an example from life. When a novice driver is just learning to drive a car, he drives carefully, while observing all the rules. However, after a while, he becomes overconfident and then dangerous driving begins. But due to the lack of driving experience, the probability of getting into an accident increases sharply, which is confirmed by statistics.
Use of credit funds
You cannot use credit funds to enter the market. The loan will oblige you to regularly return money with interest, and this will provoke psychological pressure. Due to such pressure, you will constantly want to make money on the stock exchange, but this does not happen. The market is not designed in such a way that it will distribute money as a salary. It only gives the trader an opportunity to earn money in a favorable period of time.
Trading on the market always carries risks. It is impossible to always come out a winner from any transaction. However, you can minimize your losses if you follow the recommendations and your personal trading strategy. You also need to remember about the private mistakes of beginners and, if possible, try not to allow them in your trading.
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Why should I choose this service?
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