Trading psychology, particularly how to handle losses, is an subject that affects all types of traders. Losses are a natural part of any strategy. If you’re guessing and have been lucky, when that big loss comes, your world can shatter. You can spend countless hours refining, optimizing, and testing to see if you’ve “fixed” your strategy. While these new changes may show promise for the current day and recent days, you are still open to those big losing days. Day trading courses like the Trade Scalper from Day Trade to Win will give you rules to manage risk and find specific setups.
Your rules need to encompass several important factors. Firstly, they need to be based on real-time market conditions. If a market is too slow or too fast, it’s going to be less predictable. Stay out. A tool such as the ATR (Average True Range) can help determine volatility. John Paul from Day Trade to Win uses it for this purpose. Another way to manage risk is to limit profit targets and stop losses to reasonable values. By reasonable, this means what the market can realistically produce considering current market conditions. If the market is too slow, do not expect as large of a profit target. If a bit faster, sure, going for a couple more ticks.
Trade Scalper – Multiple Ways to Reduce Trading Risk
Another tactic is locking in profit and accepting break-even trades. Not every trade that goes against you needs to result in a loss. Consider the time-based stop that John Paul teaches. If your profit target is not hit within a specific time frame, you need to get out at the current price. Do you trade with an exact rule like this? If not, it’s time to reconsider. Otherwise, you could stay in the market too long hoping and wishing for price to move back to profit territory. One thing is for certain in the markets – the longer you stay in a trade, the greater the exposure to risk. Getting in and getting out quickly is important. That’s exactly what scalping is all about. That’s what John Paul teaches in the Trade Scalper trading course.
In this video, you can see how he tries for a profit of three ticks. Price only reaches two ticks. Sure, he could have moved his profit target and possibly got those two ticks. However, if you’re always willing to accept less, you’re never going to get each trade’s full potential. Instead, he stuck with the rules. Over time, price moved away from the target and approached the entry value. This is the important part. To exit the trade, he drags the profit target to the entry value. The result is a break-even trade. The only loss here is the cost of broker commissions (typically around $4.00 per contract, per trade).
When day trading, losses are inevitable. Managing risk to minimize loss is crucial. With objective rules in place, one can assess market conditions without being subject to detrimental psychology.