Trading on the financial market is quite a complex phenomenon that requires special attention, hard work, and tips for becoming a successful trader. For some beginners, losses are considered to be a failure, however, there is not a single successful trader who does not have experienced losses throughout the whole trading process. It can be more surprising to say that successful trading does not mean trading without the losses, vice versa, it means studying from the losses, making them a lesson for you, and taking advantage of them.
The win-loss ratio in trading
One of the most important statistics for the trader is its own win-loss ratio, which to explain with simple terms, is the number of winning trades divided by the losing trades. For example, X trader has executed 100 traders and 80 out of them were profitable. The win-loss ratio of the X trader will be 80%.
However, high win/loss ratio numbers do not mean that the traders have seen a high profit, a successful trader might only have a 30% win/loss ratio but the volume of the win might be excessive over the losing volume. Traders should realize that losses are important aspects of their trading process and learn from those events. Some of them even say that losses are better for teachers than winning positions because it makes you more focused and motivated for future moves.
Using losses to improve trading
Not only in trading, but in life, losses can always be treated as a learning experience. Some traders think that successful trade means when they wisely avoid the loss and conduct the trading process very positively. However, there is no such thing in trading as a guaranteed no loss trading strategy in Forex, but there are several important steps that will help you to reduce the number of losing trades. The first step for that is to accept that you have lost at that certain time. After that, there are actual steps that can help you to better analyze your loss in trading and use it for future success.
- Reviewing position sizing – at a glance, it does sound to be an easy part, but for the majority of traders still finding position sizing still remains a challenge. This usually happens when they take a risk. The solution to that is to have a solid sizing strategy that will help to reduce the risks throughout the process.
- Analyze each loss – sometimes it is difficult to look back at your loss, even more, when it is quite a significant amount. However, the honest and brutal analysis will help you to analyze what was the mistake and how you can avoid it in the future.
- Using a stop-loss level – it is also important to set the stop loss level for each trade and use a dollar value or percentage value for each of them. That will help to get out of a losing trade and help you control your emotions. Trading platforms usually offer this option to their users while entering the trade.
- Reviewing exit strategy – all the traders should have an exit strategy, and define how soon they cut their losses. An exit strategy is mainly the most important part which makes the difference between a winning and losing trade.
- Control the emotions – the two most common emotions that reduce the efficiency of the trading process are fear and greed. Those are the feelings that work against you and for reducing their impacts on your trading process, the best solution is to use the special tools that the trading platforms allow you to use, such as stop-loss orders to make the decisions dependent on your objective thinking and clear from additional negative thoughts.
- Trading journal – trading journal is the best solution to record the traders. It should have indicated the entry and exit levels, all the executed traders, does not matter won or lost. That will help you to better analyze the mistakes that you have made, either technical or emotion-wise and there are also some questions that will help you to better analyze the situation.
How much risk did you take in that specific situation?
Did you get in too early?
Did you get out too late?
Were you chasing the trade after missing the initial signal?
What market signal did I ignore?
What specific steps do I need to take to avoid the same mistake in the future?
There is a famous story from a famous trader, named Mark D. Cook explains the shameful moment when he had to tell his mother he lost the money he had borrowed from her. Due to the fact that this was a very bitter loss, it made him realize his own plan and strategy even more seriously. It took quite a while for him to return to the process again, but the previous failure appeared to be a good teacher and experience for the future. Even millionaires have had severe losses in their lives and it is not necessary for you to face the same severe loss, in order to realize that in any case, you need to turn it into something positive for the future.