Strategically losing some battles to win the war is necessary. That’s why you shouldn’t fear losing trades.

The hardest, but also most important lesson to learn in trading is how to minimise your losses. Most traders will encounter a string of losses at some point. So those who can’t lose without being thrown off their game won’t survive the market.

Turn losing trades into a winning strategy!

Having realistic expectations is the first step

As a successful pattern trader for over 20 years I am realistic about my win/loss expectations. To be a successful CFD trader means expecting losses – lots of them, but the goal is to aim for mostly small losses, for some small profits, and a few large profits.
Manage your losses

The number one rule isn’t that you make money on every trade but rather that you do not take a BIG LOSS.”

Let’s say you lose 50% of R10,000 on a trade. You are then left with R5,000. If you want to get back to R10,000 again you need a 100% gain. So the most important part is make your losses as small as possible. That way you’ll still have money for the trades that’ll make you big gains!

Don’t stack the odds against yourself

Perry Kaufman has done a study to see the long-term odds of having streaks of winners and losers. He notes: “In 1,000 coin tosses, you can expect only one run of 10 heads or tails in a row.”

This means if your wins and losses were completely random you could expect a winning or losing streak of 10 trades in a row for every 1,000 trades you do.

Now if you ensure you only lose 1% or 2% of your capital in a trade you’ll see that if you lose ten in a row (which is the worst case scenario) you’ll still have 80% or more of your capital left.

If on the other hand you let big losses slip through, your capital would be running very close to zero by that time!

A good example of the above point is our current Pattern Profit Alerts track record. I joined the Pattern Profit Alerts team on 11th April and in that time I’ve put out nine trades.

The first 7 have closed out as a straight set of wins where my traders have enjoyed small, but regular profits between 30 and 50% gains with one or two big hitters like Intel closing out at 71.73%

But then came our first loss on 15 July with Public Storage (PSA) But, our tight stop loss contained our loss to a minimum at -9.76%

I didn’t expect to keep on winning every time and for each and every trade, we made sure we had clear take profits so we didn’t get greedy as well as a tightly managed stop for each trade.

How do you keep the big losses out?

So you’ve got a winning system that gives you some big winners, smaller winners and the occasional loss. Now you have to start cutting these losses so they don’t start eating into your capital. That’s what stop losses are there for!

So whenever you set a trade using a geared instrument I recommend that you make sure to place your stop loss with this in mind!

There’s a wealth of stop loss strategies for your use out there. And it’s only a click of your mouse away.

So, go on! Become a better trader by managing your losses and riding your gains!

If you’re not ready to develop your own trading system yet and prefer to follow one with a proven track record, then join our Pattern Profit Alerts community here. In just over three months, traders have enjoyed cumulative gains of 320% (including losses) – that’s an average of 40% gains per trade with open time average of just 26 days!