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Posted on Sep 17, 2021 at 03:48 PM
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SMALL LOSSES, BIG LOSSES

In the last read, I ended by asking why it is so important to focus on not losing money. So I’m going to pour out my heart on that in this article. By the end of this article, you would understand why you need to avoid losses, and how to take calculated risks while trading the market.

Dear friend, the reason you need to focus on not losing money is that while “Small losses make you, Big losses break you”.

I think you should read that aloud again! “In Forex, small losses make you, Big losses break you”.

Since you and I know that there is no way on God’s green earth that you are going to have 100% accuracy while trading the biggest financial market ( Forex), then you'd agree that when losses occur, you'd always have to cut it at some point.

See, while a small loss will leave you with an Account Balance sufficient to enter more trades, a big loss will take your entire Equity along with it and nothing to keep the account floating!

Simply put, big losses will blow your Account!

So, the lesser the loss, the better it is for your account and your mental health.

Trust me! As a Forex trader, it is important that you feel comfortable with taking your losses because you cannot avoid them. 

They are just necessary evils and in fact, part of the business.

Let's take a quick example:

If you split your position size into 3 pieces and the first position got a risk of 1%. If the market moves against you, 1% is all you can lose.

However, if the market moves in your favour profitably, you scale up the position by either adding another Trade using another 1% of the risk.

This simply means you'd have to move your stop loss (in mind) such that when you add to your new position size you would still maintain a 1% risk.

With this done successfully, you'd maintain the same risk but your position and possible outcome will be twice as big and comfortably, you can do this again the next (third) time you decide to scale up the position. 

If successful as well, then you'd have a 3 times bigger position or more, with just 1% risk and if the market hits your target, you are going to smash a big-time profit!

However, if you are the type to play it safe, you can calculate your position size, such that you will only break even (close position at entry price) in the worst case.

That means you've got nothing to lose, but a lot to win in the long run.

Now, the way you split your risk is up to you but should be based on your total Equity because, at the end of the day, you are the one who is pulling the BUY/SELL trigger.

Like I will always suggest to my new Traders, “practice often with small Micro Lot-sizes” and set up your personal trading plan before you start to trade with really serious money.

As soon as you start to make progress, say 6-7 wins out of every 10 Trades, next, try to flip a small account.

If you can’t flip a small account, you won't be able to flip a big one, so it's better to start small, grow fast before you Go BIG!.

This way, your emotions won't ruin your trading decisions and you can stick to your plan, and get a feeling for trading with serious money.

Trading with standard Lots is a way different story because there are more emotions involved. As soon as you become a master of your craft, you can even flip (make 100% of) an account with just one good trade.

But first things first: Learn how to ride the waves. Cut losses quickly, and let the winning trades run!

I can tell that it seems very hard to do because it is against human nature. 

We all want to bank profits quickly, but at the same time, we don't want to lose money. So most of the time, traders struggle with holding losing trades for too long but cut the winning trades too early. Even myself too…Lol!

My final word… We as smart traders have to do better than what average people are able to do; cut losses early &, let good trades cook well.

Instead, stay on the grind and don't allow emotions to ruin your trading decisions. 

Stay learning! 

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