Stocks & Commodities V. 31:4 (65-66): The Secret To Success? Small Losses by Danish Kapur

The Secret To Success? Small Losses by Danish Kapur

Taking small steps, being patient, and following a well-thought-out plan makes all the difference.

You’ve read enough books on technical analysis. You’ve attended seminars and courses. Now you’re ready to tackle the markets. Most people think that if they can analyze the markets correctly, they can make a profit easily. After spending years learning different forms of analysis and modeling techniques, and spending enough on expensive software or trading systems that you think can do some magic, people assume they can make money easily, but that is not the reality.

You can come up with the best analysis of the market and economy and still lose money. It happens to a lot of traders. Although I think analyzing the markets is important, it has little to do with successful trading. Successful trading has more to do with getting your money out of the market in a disciplined way.

The small loss

The biggest hindrance to successful trading is the refusal to accept your mistake when it can be done at a small loss. It is human nature, and unfortunately, one that comes at a cost. It can lead to massive destruction of all your wealth and all your confidence.

People assume that taking an early small loss will somehow lower their self-esteem. What eventually happens is that the small loss turns into a greater one and ends up putting you in a situation where you are trapped. Sometimes you just can’t find a way out. It’s not a good situation to be in, which is why it is so important to predefine your risk in every trade you take. Not doing so is a sure way to make your relationship with the market a very brief one.

Often, your views tend to be one-sided and you assume there is no room for error. When the stock starts moving in the opposite direction, you start thinking that it is a temporary pullback and the stock will resume its previous trend.