If you don’t want to take big losses, you simply don’t let them happen,  it’s your choice. 

It’s not a new revelation and it seems simple enough yet as traders we find this a mighty difficult task to achieve but if you don’t it will decimate your capital so let’s look at what we can do.

The key is to have a process that helps protect us but more importantly we need to have the discipline to enforce that process. We all find this difficult to do on a consistent basis but to succeed we must learn how.

Let’s try and understand why it’s so hard.

Let me firstly restate the Five Fundamental Truths of Trading from Mark Douglas of Trading in the Zone, which we need to accept to move forward and improve our trading skills.

1. Anything can happen.
2. You don’t need to know what is going to happen next to make money.
3. There is a random distribution between wins and losses for any given set of
   variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing
   happening over another.
5. Every moment in the market is unique.

What can we do?

95% of trading errors occur because of

1. Ego and being wrong – now that’s the biggie.
2. A mistaken desire not to lose money – it is inevitable that sometimes we will but losses must be managed properly.
3. A fear of missing out – why? It’s only an emotion.
4. Hatred of leaving money on the table – we may be lucky enough to pick a market top or bottom but once in your lives. So don’t expect to do it every time. It can be a huge emotional deadweight trying to achieve it every time

What it comes down to is that our worst enemy is in fact ourselves. If we can get over these four causes of trading errors and deal with trading in a regimented unemotional manner we are well on the way to becoming consistently successful traders. It’s not easy but we need to take control of our trading decisions and not let the market dictate to us.

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