21 ways to avoid losing money trading
Trading when treated like a business should be very profitable and rewarding.
In this blog post, I will be discussing the best way to avoid losing money in trading.
The first law of investment says that you should avoid loosing money. This is because once you have lost an account, it become very hard to recover that money.
Speaking of losing money in forex, I mean not wiping out your account, otherwise, occasionally losing some trades is considered normal.
#1; Only trade what you know well
Trading is a game of intelligent people. There is no other better way to boost your IQ than to read widely expecially the subject matter.
If you make learning of trading an ongoing process, then you should be able to swim with the big fishes like the institutional traders, and come up with something.
Try to read atleast something about trading for one hour daily and in three years you will be a professional trader.
There are many free books that can be downloaded online. All you need to do is to search for top hundred trading books and try to download the ones that attracts you.
To be on the safe side, you can also learn how to code with MQL4 to help automate your trading strategies.
#2; Trade with expert advisor
It’s said that 90% of forex traders fail. Another statistics have it that 90% of forex failure is caused by psychological problems.
Now, the logic presented by this blog is that if you were to trade with an expert advisor then 90% of the challenges would have been solved and you could join the 10% of the successful traders.
Learning to code with MQL4 language maybe a one month commitment that have the potential of solving all life problem.
I have gone through the course and it’s not that difficult to master even for those who don’t have a prior programing knowledge of either C or C++.
I will not advice that you buy a robot trader, it’s better to develop your own because if that tool was profitable then the seller would have made money with it Instead of selling it.
You can even employ a computer programmer to turn your strategy into a program and trade with something that you understand.
One major advantage with a robot advisor is it’s ability to be back tested and hence the rare opportunity to enter a market knowing that the odds are in your side.
#3; Trade as a businesses startup
Trading should be treated as a business. Tacking of a business, you should have a plan of action that gives you a competitive advantage.
It’s your competitive advantage that gives you a trading edge and therefore a reason to start trading, all of this is in your business plan.
With a business plan, you will know your daily targets and hence minimize greed.
If you want a customized and detailed trading business plan, feel free to conduct us today and we will be of great help to you.
Treating your trading endeavor as a business means you are minimizing costs to maximize profits, minimizing risks and above all learning and persisting.
#4; Interview your brokers intelligently
Brokers can make or ruin your account. If you are serious about trading, then you should work with serious brokers.
It’s not enough to check if a broker is registered, you should also find out if they are trustworthy.
You can double check the reviews of the broker and visit their frequently asked questions to find out the most asked questions and how they respond to queries.
A thorough scrutiny of a broker can help reduce stresses that would have otherwise disturb your trading journey.
I advise that you go through the terms and conditions before you sign and open an account with your broker.
Also, you should double check to find about any hidded charges and if possible, negotiate for better terms.
#5; Start with a demo account
What you learn in theory mostly won’t transform into reality.
A demo account will help you to get used to the platform to an extend that you can’t get hurt by silly mistakes like placing a limit order instead of a buy stop.
Also, a demo account is a good place to develop a trading strategy and back test it. You should be confident with your strategy before you move on to the real account.
Most people start with a demo account before they move to a real account. This way, they minimize the chance of losing a lot of money during the learning phase.
#6; Start small when going live
When going live, try your luck with a mini account and scale your way up. You want to nature your confidence and double check your strategy without much hustle.
Its better to be slow but sure. If you rush and loose heavily, you might just decide to abandone trading as a whole and try something different.
My aim is to help you get the best of your time and succeed as an online entrepreneur.
If you follow this steps, religiously, you will be smiling all the way to the bank in no time.
#7; Trade with a bank account
Many forex brokers can’t be trusted. This is because they make money when you lose.
Slippage, excessive costs and hidden charges and are some of the fraudulent means that forex brokers can use to make your trading journey difficult.
Though banks are not Engels but trading through such accounts will help minimize the mentioned challenges.
The best way to solve this issue is to trade through a bank account of your nation.
In kenya, equity have just announced its EazzyFX mobile app that will help its customers to trade forex without much hustle .
With a bank account, your trading will not be leveraged which is a big plus to you because your account can never diminish to zero.
#8; Use leverage sparingly
Leverage as you already know is a double edged sword. It can make you rich or ruin you entirely.
We are not here to gamble but to make and run a sustainable business. For that reason, we will go with what is working.
A leverage of 1:10 and below is the best. Anything more than that is a pure gamble and a very dangerous game.
In fact, US government requires that brokers provide a trading leverage of not more than 1:50.
What does that mean? It means that any leverage that’s more than 1:50 is a self gunshot and any company that try to lure you into such scheme is a scum.
#9; Manage your money wisely
Learn the concept of compounding and the domino reaction.
Compounding has been termed the strongest force in the universe and passive income the wisest way to make money by the new rich and wealthy.
You don’t want to miss the opportunity to grow wealth with less stress that’s why you must use this skills.
With a computer program you can be able to make the concept of domino reaction a reality in your trading business.
Your expert advisor will do all the trading for you as you focus on other projects. At the end of the day, the income from trading and from other sources will make you rich.
#10; Taking time to prepare
In forex trading just like in all other investments, money is made during the entry.
If you enter into a wrong deal, you already lost the game. Contrary is true.
A considerable time should be taken to ensure that the strategy entry tricks have been made.
Most traders fail because they never took the time to carry out fundamental analysis as well as technical analysis.
Opportunities will never run out, even if you miss this opportunity, others will come but if you hurry and lose your capital, you may recover but it will take a considerable amount of effort or you lose it forever.
Just like real estate or stocks, how you get out of the trade is of pivotal significance.
You should take your time to decide how you will get in as well as how you will get out.
#11; Wait for a perfect opportunity
Only enter the trade when all of your strategy signals and conditions have been made.
Many traders fail to confirm other time frames to find out if they are right. In forex, pips are like butterfly, the more you keep on chasing it, the more it keep on eluding you, but when you sit down and focus on other things, it comes and sits on your shoulders.
Sit down and focus on other things like how you will enter the trade and how you will get out. Relax and check your strategy rules if they are met.
Trading is both a science and an art. using indicators, risk rewards and the whole strategy is science but those of butterflies are the art part of this game.
It all depends on what’s going on deep down in your believe system. If its corrupted, now, that becomes the problem.
A corrupt believe system, which is the cause of all trading maladies, is that which is not build in high self esteem, that which doesn’t believe in the assurance of a brighter tomorrow.
You see, if you were sure that you are going to be and you already is a success, then, you won’t be rushing up and down like a hyena.
Stop loss and take profits levels and hence the risk reward ratio should be calculated and well know and accepted before you enter the trade.
Once all the conditions are set, pull the trigger, set the limits and go on with your daily activities.
You may fail or you may win, that’s not important, what’s important is the strategy that you know well that you have obey, which will average your results to a win at the end of the day.
#12; Monitor the securities at all time
We have agreed to a man that the best trades are those that meet all the rules that are set out in your strategy.
With complex strategy using eight indicators, those conditions may be met only three to fivetimes in a week in seven securities.
You don’t want to miss such chances because once they are gone, then it’s hard to recover.
For this reason, you will want to be checking your screen everynow and then.
For stochastic to line up with RSI, all in extreme positions and to line up with moving averages can be a bit tricky.
Imagine waiting for a solar eclipse, if you miss it once in a year, then, that year is gone. You will have to wait for the next year for it to repeat.
#13; Keep a trading journal
Most of the loses we make as traders are those that come from not following the rules of our strategy strictly.
If you have ever run a business without records, even a small one like poultry farming, then, you know what I mean here.
A trading journal serve to document your moods, profits/loses and how you are following your strategy.
With a trading journal, you can quickly pin-point the loopholes and avoid them as you built on your strengths.
A good journal should help you enhance your strategy than forcing you to abandon it all together.
To be on the safe side, make a comment or comment every trade that you take.
This, in effect, will serve as a way to reduce the number of trades that you take per day.
#14; Don’t over trade
Elsewhere in this post, I mentioned that
you should only enter a trade that is a hot cake.
Those trades that meet and or exceed your strategy rules, those that goes to the extremes.
The idear behind this approach is to minimize the fees that you pay and to focus your attention.
In a week, you should only enter not more than three trades. This means that in a month, you are taking roughly ten trades. If you are employing a risk reward ratio of 1:2 then, you will be making a profit of 10% monthly that’s if you manage to win 50% of your trades.
Taking into account the power of compounding, 10% monthly is a very good rate of return for your money.
#15; Don’t over diversify
Diversification is good but when you overdo it, then, you loose focus and hence the possibility of making deadly mistakes.
I would advice that you focus on one currency pair at a time. Master it then move to the next.
Also, learn and master one asset class before you move on to the next.
When moving to the next asset, do it intelligently, for example, you can master forex trading before you move on to Currency options and or futures.
This approach will help you to minimize risks using the concept of Delta neutral.
The rule of trading not more than three times a week hold even when trading different asset classes.
16; Analyze the security intelligently
Technical, fundamental and sentimentals are the analysis that every trader should undertake before taking a position.
Fundamental analysis will help you to get the overall overview of the market and have a hint of what might happen in the market.
Technical analysis should actually prove what the fundermentals are saying and give you the entry and exit points.
Sentimental analysis has to do with the psychology of the traders, what your competition thinks and should serve to give you a genaral picture of the market.
Trend, momentum, volatility and volume are the major variables that a trader should be looking for in a potential security.
Keeping the charts clean is one way of reducing decision problems. Consider having at least one indicator to measure the given variables.
Fibonacci, Moving average, MACD, stochastic, RSI, OBV and Bollinger bands are the most important technical tools to choose from.
Make sure that you are a real analyst before you attempt to trade the forex market.
I don’t understand why one should not considered all the analysis for a security. In fact, carrying out all analysis minimizes other potential mistakes like overtrading and over diversifying because you are busy finding facts of target security.
17; Take care of correlated securities
Some forex pairs are correlated just as options and futures of the same product are.
You should not trade securities which are related unless if you really know what you want to accomplish with such a setup.
A good example of correlation is currencies options and futures. This are correlated securities in the given asset classes.
In currencies, EUR/USD and GPB/USD are correlated.
18; Add to your winners not losers
Instead of additing up to your losers, matingale strategy, add to the winners, unti-matingale strategy.
Losers are losers as such and the only solution to them is a strict stop loss order, period.
Infact, when you are making loses, stop trading. For example, you can make it a rule to stop trading when you lose more than 5% of your capital in a week.
Use that time to review your strategies and to pin point the possible cause of the errors.
19; Have a strict stop lose order
A stop lose order will ensure that you don’t lose more than a pre-set amount in a given trade.
You should be able to know when you are wrong and accept that you are wrong.
It’s not a must to be right all through. A stop lose will protect you against catastrophic loses.
To be on the safe side, you should risk only one percent of your capital in any one trade.
With such an approach, you will live to fight another time if you lose your shirt on a given trade.
Never try to adjust your stop lose point unless you have a really reasonable reason to do that.
Also, you can execute your stop lose immediately those points are triggered, that way, you can hide the exact position of your stop lose until the right time.
20; Risk reward ratio
It’s hard to be knocked down when you have a classic strategy and a favourable risk/reward ratio at your side.
I encourage a risk reward ratio of 1:5. This means that you only have to be right 35%
to multiply your money.
The lower time frames will help you pick the best stop lose point while the higher time frame is a good place to check your target points.
Never enter a trade that does not meet this condition, remember, you only need two trades in a week.
It should be easy to find two trades that meet this conditions in a week especially if you are diversified enough.
21; Trading a hybrid strategy
Its better to improve on your strategy than to start another one all together. Only under extreme necessity should you abandon your initial game plan.
Trading using fundamentals demands that you trade the news which can be a great booster to your technical analysis.
Taking trades when the major announcements are made is trading like the bank.
Banks and institutions trade the fundamentals and hence the huge price swings during major announcements.
It’s that volatility and real price movements that you want to capture during the major news releases.
Normally, the prices moves to the opposite direction before they pickup the momentum to the right direction.
In effect, this innitial swing movements cuts out the stop loses of most investors before in moves to the right direction.
Successful traders have been trading the same strategy for centuries only now that they have troubleshoot minor issues here and there and they have mastered the strategy.
You too can adjust your strategy to reflect such swings in the initial price by either waiting a few minutes or going against the trend for those few coins then changing gears to real ones.