This article will be teaching you about why most traders lose money even though they have learn everything about technical analysis and have long been trading.
Psychology plays a huge role in trading as when we trade in the market, it’s all about markets and us. So what happens then is we tend to go into this loop where we repeat all our previous habits and when we lose, that will amplify our emotions to make us revenge trade or adding more lot size to the position. Increasing positions.
When we trade our brain will automatically go into this state of trading where it’s the same as fight or flight. We do not want to lose so we will do whatever it takes for us to make back.
Let me give you an example, let’s say a trader deposits 100$ to start with and in a week of trading, he makes it to 1,000$ that’s 10X of his money already.
Next week of trading he maybe loses 3 trade that comes to 150$ as he is risking 50$ per trade.
He would be more likely to try to make back that 150$ dollars in that same week and not taking a break as he have made loss. By doing this, he would have add more positions, increasing lot size and risk even more than his account capital.
This is very common in traders who do not control their emotions while trading.
Solution to this is always have a limit on how much you are risking per trade and if it hits your SL and is at your current limit, then take a break from trading and go through those trades that made you a loss.
– why did I take this position?
– Does this position follow my trading rule?
– What was I not looking at that point of time?
– Was I rushing this trade?
Once you asked this questions to your self then you would know the exact reason why and what made you to take this loss. That would not make you to react aggressively to eventually blow your account
Using a journal in trading makes you more disciplined while taking entries and when you want to go through your positions it gives a better clear view on how you are as a trader. This is very important thing while trading
Journal should have your strategy such as entry, trend, timeframe, entry timeframe, take profit, stop loss, reasons for entering, image
These are some of the parameters we use when we would like to make our journal, you can even make it with more parameters if you are using a complex strategy which consists of confluence.
The whole point of this is to make sure you are always having a clear view on the markets and not steering away from your rule and trading system.
Once you have this in set, nothing can ever stop you from your own system. You will be super disciplined in your trading and know when to trade and when not to trade. That would slowly turn into a habit and then becomes a part of your lifestyle.
What is position sizing?
This is when you calculate your actual position lot size before taking the entry. Many people blindly and randomly take a entry size without knowing the risk behind it.
While traders use leverage, this is what we called as double edge sword. It can be good and bad for you
Good & Bad
It helps to amplify your position profits when it is going favour to you as with a $100 position using a 500 leverage can make your position capability to $50,000 and even a slight drop in price can lead your account to blow
If you have trouble with this I would encourage trades to reduce their leverage to 100 or even 50 for those starting out as with this leverage you can’t go over your margin limit.
Using position size calculator makes this even more easier. What you need to do is get your position’s stop loss and also your account capital and how much are you risking per trade
Let say you want to BUY EURUSD, with a $1000 account capital and you are risking 10% and your stop loss is 100 pips. So with this you will get a lot size for that exact amount.
This way you do not let yourself to control the size of your position. Let say you would want to risk 10% but do not want to put it all in one trade, then you can split it into two position
This is where you can design your own way of taking your entries.
It gives you a better way of a managing your positions
The link to the position size calculator is here below
Myfxbook psoition size calculator