It has been admitted by several successful share traders that the ability to comfortably take a loss is a key to succeeding in the business. Share market being highly unpredictable, gains and losses are the part of the game. There is no escaping from losses and one’s ability to deal with these losses ultimately helps one in succeeding and overcoming those losses. Let us discuss some of the things that will help you in taking losses in your stride and using it effectively for long-term gains.
It has been revealed by common trading psychology that whenever a trader incurs a loss, he becomes a perfectionist in his trading activities. A good day in the trading business is not one that is devoid of any losses but one in which the trader has an extensively researched plan and he follows that plan with focus and discipline. It is when the acceptance of loss has been mastered and a plan has been formed to come out of them, that the trader truly experiences profits.
Traders should know that there are certain things that he can control and certain things that he has absolutely no control over as the market fluctuates greatly on a daily basis. A good trader is one that has an extensively researched strategy keeping in mind the factors that he has control over. This can help him to generate long-term profits.
The market can be cruel at times. Losses are not something to get obsessed over. Instead of being a perfectionist, the trader should be realistic in his approach. He should be very well aware that he will have to face the losses. Once he accepts this fact, he won’t be wasting his time obsessing over the loss,instead, he will prepare to bounce back.
Trading psychologists have identifies three strategies to stop losses. These are:
- Price Based
Price based strategy is resorted to when the other two fail to function. Under this, the trader identifies the low point in a particular market and sets the trade entries near that point. The idea is to make sure that even if the hypothesis fails, the losses won’t be huge.
Under the time-based strategy, the trader designates a holding period that effectively allows him to capture a certain number of points. If the desired profit level is not achieved within that time period, the trading is stopped.
Under the indicator based strategy, the trader is expected to be aware and study the market indicators such as declines, advances, volume, new highs and lows. He should utilize these indicators for trading experiences.
Experts in trading psychology maintain that rehearsing the stops mentally and following them religiously will help the traders succeed in the long run