Thanks everyone for your “food for thought” on my post.
I’m looking forward to a very productive 4th year as a full time swing trader
Why do traders lose more money on their losing trades than they make on their winning trades?
- Thread starter Lloyd W. Coutee
- Start date
Thanks everyone for your “food for thought” on my post.
I’m looking forward to a very productive 4th year as a full time swing trader
The main reason is that when a trade goes against you and it approaches your physical or mental stop loss, you know if you let the trade hit that stop you will lose that amount of money. So sometimes traders will either have a wider stop or even move their stop down hoping that price will turn back in their direction and that they will not be stopped out.
The reverse is true for winners. Once a trade moves in your direction you know if you kill the trade or lower your target you will 100% have a winning trade and book that profit. Plus the fear is the reverse of a trade approaching a stop, you think if I don't take the profit, price will reverse and the trade will go all the way back past my entry point and hit my stop. Yes, this does happen, but what can also be done is once the trade is going your direction instead of booking the profit early, you can move your stop loss up a little but make sure the trade still has room to breath.
The other problem is that if you have a 50% win ratio but you let your losses run more than your winners assuming standard target and stop, you will over time lose more money.
A good solution is to have a standard stop and target based on back tested price swings so that you know how far to place your target and stop. If you then are able to achieve say a 60% win ratio or higher with equal risk vs reward then over time you will make money. However, for me this is not set in stone. If I see that I need to move my stop a tiny bit more to make sure that the market does not prove my original trade wrong I will do so. If it looks like you need a big stop for a trade then you are not getting long or short at the right place. Also, if I see that my standard target is unlikely to be hit say because price will need to break the high or low of the day, I am willing to lower it a little. Also, you need to determine if you are trading at a good entry point vs chasing price. You need to have patience to wait for your setup.
The reverse is true for winners. Once a trade moves in your direction you know if you kill the trade or lower your target you will 100% have a winning trade and book that profit. Plus the fear is the reverse of a trade approaching a stop, you think if I don't take the profit, price will reverse and the trade will go all the way back past my entry point and hit my stop. Yes, this does happen, but what can also be done is once the trade is going your direction instead of booking the profit early, you can move your stop loss up a little but make sure the trade still has room to breath.
The other problem is that if you have a 50% win ratio but you let your losses run more than your winners assuming standard target and stop, you will over time lose more money.
A good solution is to have a standard stop and target based on back tested price swings so that you know how far to place your target and stop. If you then are able to achieve say a 60% win ratio or higher with equal risk vs reward then over time you will make money. However, for me this is not set in stone. If I see that I need to move my stop a tiny bit more to make sure that the market does not prove my original trade wrong I will do so. If it looks like you need a big stop for a trade then you are not getting long or short at the right place. Also, if I see that my standard target is unlikely to be hit say because price will need to break the high or low of the day, I am willing to lower it a little. Also, you need to determine if you are trading at a good entry point vs chasing price. You need to have patience to wait for your setup.
I strongly suspect that in terms of numbers of traders (if not in terms of volumes traded) a major reason is inexperienced traders' instinctive attachment to win-rates rather than to expectancy. It's all too easy for people to imagine that "if the win-rate's high enough, then the bottom line will take care of itself", whereas in reality this is a very misguided approach.
Both inexperienced and lack of proper knowledge/trading system that makes traders lose more money than gaining some money...
Honestly, I have no problem if my losing trade is much larger than my winning trade, this all boil down to the risk/reward vs win/loss ratio.
I am completely OK if a system allow me to make $1 or loss $6 in each trade, IF my winning ratio = 95%
You must be enjoying an Edge!
EDGE is key to any strategy !
Only a calm mind can clearly see the edge and incorporate it in strategy.
Here is a transformstive sound therapy to overcome fear and cultivate creativity :
http://www.elitetrader.com/et/index...ing-this-transformative-sound-therapy.299065/
That is a solid suggestion for beginners. Do you see anything other than scalping as solution in this regard?
I BOW to your WISDOM ! ! !