How To Remove Your Losing Money When You Place Trades

If you’re going to be a trader, you’re going to lose money at some point, and in case you are still in the phase of trying to avoid all losing trades and searching for a “Holy-grail” trading system with a 75% strike rate, you should forget about all that right now. As cliché as it may sound, losing really is part of winning as a trader; the two are inseparable. If you don’t learn how to lose properly you will never make consistent money as a trader.
 Some of the key reasons why traders become fearful about losing their money include the following:
1. They don’t understand that mathematically, over a series of trades, a trader can lose a majority of their trades and still be widely profitable, simple math proves this.
2. They are simply fearful of losing money in general.
3. They are trading positions that are too big (risking more than they really should be), causing fear, sleepless nights and huge emotional swings.
In the rest of this lesson I’m going to provide you with some insight into the fear of losing money in the markets and how to conquer it. This is some pretty powerful stuff so make sure you actually read the whole article and re-read it if you have to. What you learn here should give you the power to eliminate your fear of losing money in the markets and will help you develop into a confident and emotionally collected trader.

Fear of losing money can be a good, natural emotion, but we need to transform its focus.

Fear of losing money is a good emotion to have in many areas of life, if we did not have it there would be even more chaos in the world and in the markets. Humans are protective of their acquired wealth and property, and rightly so; they worked hard for it.

Instead of being fearful of losing your money when trading, embrace the control you have on each trade; a trader has complete control over the risk management of every trade via stop losses and position sizing, [and for more advanced traders, derivatives and hedging mechanisms (not discussed here)]. These risk management tools are your way of being in control of your money/funds, and instead of being “fearful” about losing money, you should feel empowered and confident because you can predetermine how much you are comfortable with potentially losing BEFORE you enter a trade by using these tools.

Ask yourself some serious questions

1. Do I really have the knowledge and confidence to be trading with real money in the first place?
If you’re trading your hard-earned money in the markets but you don’t know what your trading edge is and you don’t have 100% confidence in your ability to analyze and trade the markets…you probably should not be trading. One of the biggest reasons traders become afraid to lose their money is because they aren’t confident in their own ability to trade! It seems silly I know, but it’s very true; many traders simply don’t have a trading strategy mastered, they don’t have a trading plan, trading journal, etc…they simply aren’t prepared to risk real money in the markets yet…thus they feel fear when they trade.

2. Am I trading a position size that’s too large for my personal risk profile / per-trade risk tolerance?

If you don’t know what your per-trade risk tolerance is, then you need to figure that out first. It’s basically just the dollar amount that you feel like you are 100% comfortable with potentially losing on any trade; because you CAN lose on any trade…remember that. You have to take into account your overall financial situation and then determine how much money you should realistically and honestly have at risk in the market on any one trade…be honest with yourself here. You’ve got to think of yourself as a risk manager and as someone who is managing funds, rather than just a small-time guy trying to get lucky; your trading mindset will directly influence your trading results.
3. Do I truly understand the math’s behind trading?
When I say the “maths behind trading” I am mainly referring to risk reward and how it relates to your overall winning percentage. For example, on a series of 20 trades, you are likely to lose at least 35 to 45% of the trades, and most traders who are successful lose anywhere from 40 to 50% of the time, some even up to 60% of the time. But, through the power of risk reward you can lose more than you win and still come out very profitable. We will expand on this below.

Embrace the belief that losing is OK

Losing is good if you’re cutting your losses quickly and understand that by doing so you’re simply preserving capital and that your winning trades will pay for your losing trades with profit left over. This is the power of your average risk reward ratio over a series of trades coming into play; we will see this in action below…
Even very profitable traders typically lose more than they win, to prove this point let’s take a look at a case study showing 14 trades with a just a 43% win rate. To be clear, that means you are losing 57% of the time and winning just 43% of the time. It can be hard to associate “losing” the majority of your trades with making money, but as I discussed in one of my recent articles.

Trust your strategy and Trust the maths

As we can see in the hypothetical track record above, the math shows us that even while losing 57% of our trades, if we let our winners run to around 2 to 1 or better and cut our losses at -1R or less, the profits will take care of themselves. It’s worth noting we included a couple of 1.5R winners, because sometimes it will make more sense to take a reward of slightly less than 2R, depending on market conditions. The average risk reward in this example was 1:1.75, and if you can aim for an average risk reward of around 1:1.5 or 1:2, over the long run you should come out ahead. The “secret” is keeping ALL your losers at 1R or less and ONLY trading when our price action trading edge is truly present.







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2 Fixed-Income Fund Buys

This issue, we are saying goodbye to the group’s lowest yielder, Vanguard GNMA Fund (VFIIX). Its indicated yield has steadily declined over the last five years, together with mortgage rates, and now stands at only 2.2%. The fund also isn’t without its risks.
  • First, interest rate risk: as rates rise—the only direction they can go from here—the prices of fixed-income instruments (bonds) must decline. This is fully applicable to GNMA securities.
  • Second, as rates go up, refinancing will decline and GNMA fund managers will likely lack the capital they would need to reinvest in more attractive, higher-coupon new issues. Sell.
  • Note that two pure bond funds still remain in our portfolio, PIMCO Total Return (PTTDX) and Loomis Sayles Bond (LSBRX), and both also remain recommendations. These two funds have much more flexibility concerning instruments in which they can invest.
    Why is that important? While neither fund can fully counterweight the inherent risks of bond investing (i.e. interest rate risk), they can and do manage duration, credit, country, and, to some extent, they also even venture into other asset classes (in case of the Loomis Sayles fund).
    Just look at the total annual performance for 2012 and the funds’ current yield. PIMCO’s current yield is 2.4%, but the fund returned 9.93% in 2012 (placing this fund in the top 14% of the intermediate-term bond category).
    Loomis Sayles Bond did even better for 2012: with total return of 14.77% it’s also in the top 14% of its multi-sector bond category. The higher return and higher yield of 5.4% here indicate a higher level of risk, but owning shares in this fund are well worth those risks. We are keeping both in the portfolio, and at these levels, both funds remain buys.
    What to do now: Sell Vanguard GNMA, but you can still buy PIMCO Total Return and Loomis Sayles Bond for the fixed-income portion of your portfolio.
     

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Focus on Currencies with Strong Trends

One of the first steps in any set-up for me is to determine the directional bias of the pair, in other words: Is it trending? For any trader who has watched the strong trends develop in yen pairs, it’s easy to understand it’s been more about yen weakness than the strength of the base currency in those pairs. In fact, IF and WHEN the base currency has been strong that really has been just another reason to look for more upside. The only reason any trader could be bearish a yen pair longer-term is IF they see a significant enough reason for the yen to strengthen OR expect more weakness from the base currency than the weakness expected from the yen.


The yen may have had two sessions of buying momentum—triggered by a BOJ that failed to meet the über-bearish expectation of traders—just above the 1.1100 major psychological level, but this is a shallow correction at best; one that did not even challenge the dynamic resistance of the 20DMA. Further support of the yen’s re-weakening can be found in the continual higher highs in the Dow Jones (YM).
I continue to like the New Zealand dollar strength story as it benefits from the strong and steady Chinese data without the overhang of a dovish central bank (like the aussie has). In fact it has been one of the strongest currencies through the month and the strongest of the comm-dolls.
NZD/JPY
Playing the NZD/JPY long set-ups is ideally suited for traders looking to take advantage of a weak yen and the strong kiwi, which together have this pair “firing on both cylinders”! Even if/when the kiwi weakens, expectations are for resumed strength and there is little doubt that the yen will outpace any kiwi weakness in the longer term, hence pullbacks will be bought fairly aggressively.
GBP/NZD
Another pair that has ended up on my radar is the GBP/NZD. With a fresh downtrend confirmed by the consecutive red GRaB candles and “four to six o’clock” 34EMA Wave, bounce in this pair on pound strength and/or kiwi weakness should be sold unless the RBNZ changes their tune to hold rates steady. The MPC last week took any wind there was in the pound’s sails and accelerated the bearish sentiment and momentum.





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Avoid the Noise in Trading

All right, talk about that.  How does a range bar chart look?  How does it apply itself?

Well range bar, the beauty of it as a trader in a time-based world, a trader will say I want to look at a 5-minute chart or a 15-minute chart.  Again, in a rapid movement, they might want to step back and I'll look at a 4-hour chart.  In a range-barring world, we're looking at the average trading range and the volatility of pairs.  So we will adjust the range based on how much activity is happening in the pair or the market as a whole.  As of recent, we've had much lower average trading ranges so we're cutting down the amount of range we look at.  So then we chart the market based on the pure price movement.  Time has nothing to do with it as a trader.  Traders trade price, not I have to be out of this trade in 15 minutes.  It's I need it to move and then I will be able to get out of this trade.  In range barring, a new bar is not created until the current range is filled.  It could sit in that bar for a while or in a rapid move, it will build them quickly.  Again, no elongated candles, no thin lifeless market.  A very consistent flowing display and I can assure you that every technical study indicator, oscillator, or tool will work more efficiently when it doesn't have the exaggerated pulls from rapid price or the diminished or the lifeless markets when things are happening, just happening so slowly.  The indicators and everything gets to move consistently because the chart display that it's working from is also built on a consistent view.  Again, a new bar is created when the range is filled, not because the clock is ticking.

Right, so I can see this being a benefit that as a trader visually on the chart, I can see when something is happening more readily because I can see the range bars moving rather than just a new bar every five minutes.  It's not moving any faster.  I'm not getting a feel for the momentum of the market, is that true?

We have a chart that we use.  I have a zone chart that I use; a template in our system.  The zones will use anywhere from a 10-pip to a 20-pip range.  Again, depending on volatility, the pair, time of day, all that kind of stuff.  From a trading standpoint, we'll look at more detail.  We'll go into maybe an 8- or 6-pip bar.  Again, volatility has a lot to do with what we look at.  In every case, it's the detail and clarity that I'm after.  You think about, I mean really, the worst thing a trader has to deal with is the elongated bars and how they handle that, the tails and wicks and how they handle that.  You say oh, look at that.  You see an elongated bar and see it move, oh that was an entry.  You didn't know it was going to do that until the bar closed.  You have no idea.  It might be just talk wick or something.  There's a big difference between elongated bar closing and not being closed yet.  I'm seeing that incrementally happen and then the detail of that seeing the major areas of support and resistance, being able to look at, putting on a 25-pip chart or a 30-pip chart and going back in time and seeing the areas of supply and resistant, seeing support and resistant come into the market.

Again, it comes down to a clarity difference and that's an amazing thing.  It's not that it's going to make trading easy.  There's nothing that makes trading easy.  This is a difficult art form.  It can make it easier once the trader gravitates towards this method of charting.  Charles Dow started it by doing point and figure.  Point and figure is a pure pricing model.  It has limitations because (a) you can't do anything to it technically; and (b) since it charts vertically, most traders don't know how to read it and interpret it.  Candlesticks show the open, the close, the high and low.  All relevant information, but again why time?

So our model is looking at the best of both worlds.  I still show the open and low, open and close, the high and the low.  I'm still charting it horizontally in a bar format.  I've just completely removed time.  Ours is the only charting software in the world that was not built with a time foundation looking at only the price.  So it's a merging of point and figure and candlestick charting if you will.  I think that's the dramatic benefit and the difference.

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Trading Currency Pairs


Let's say you want to buy the AUD/USD currency pair. If the Australian dollar (AUD) goes up in value relative to the US dollar (USD) and then you sell it, you will have made a profit. A trader in this example would be buying the AUD and selling the USD at the same time.
For example, if the AUD/USD pair was bought at 1.0615 and the pair moved up to 1.0700 at the time that the trade was closed/exited, the profit on the trade would have been 85 pips (see the chart below).
AUD/USD

Here is another example using the AUD. In this case, we still want to buy the AUD, but let’s do this with the EUR/AUD currency pair. In this instance, we would sell the pair. We would be selling the euro (EUR) and buying the AUD simultaneously. Should the AUD go up relative to the EUR, we would profit as we bought the AUD.
For example, let’s say the merchandiser shorted the USDJPY try at seventy six.28. If the try did if truth be told move down and therefore the merchandiser closed/exited the position at seventy five.81, the profit on the trade would be forty seven pips.

USD/JPY


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What is Forex?

The exchange market or forex for brief is that the shopping for and mercantilism of currencies, and it’s one in every of the quickest growing markets within the world.
The forex market is a continually flowing river of financial opportunities. Each week the market presents opportunities for savvy trader to take advantage of in combination with using leverage to multiply their money. However, it is no easy to ask to trade the forex market with consistent success, this is reflected by the fact that the majority of traders give up, usually out of frustration from losing so much money.
forex trading
• Learn Forex Trading Without Committing These Two Errors:
Over-trading and over-leveraging one’s trading account are probably the two biggest and most committed trading mistakes. They are also the reasons why most traders end up blowing out their accounts and quitting all together. As you learn forex trading, you have to be very conscious and cautious of these two trading errors, they often sneak up on you without you really being aware you are making them. The most vulnerable time for traders to commit one or both of these mistakes is right after a trade closes out, whether it’s a winner or a loser.

• Learn Forex Trading from a Professional:
Many aspiring traders want to become professionals and learn forex trading good enough to make a full-time living at it. The problem these aspiring forex traders face is that they often do not learn forex trading from a trusted and experienced source. This source should be someone who is already a full-time professional trader, instead of someone who is simply out to sell you their forex trading “robot” or mechanical trading system.

• Learn Simple Forex Trading Strategies:
When trading the forex market it is important that you do not over-complicate your trading strategy. As you learn forex trading, you need to make sure that you don’t fall prey to one of the many internet scammers out there who are trying to sell some trading software system or lagging indicator system. These trading strategies do nothing but over-complicate your charts and your mind to the point where you become confused and frustrated and start second-guessing yourself.

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