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Accepting Losses Reasonably in Trading (Part 2)

 Winning trades are not everything in trading and do not guarantee fewer losses. Traders must learn to accept losses reasonably to achieve long-term profits.

Looking at research results from the same source, for the GBP/JPY pair, winning trades or the percentage of trades ending in profit are 66%, while losing trades or the percentage of trades ending in losses are 34%. However, despite the higher percentage of winning trades, it does not guarantee success. Traders still experience an average loss of 122 pips, compared to an average profit of only 52 pips. This clearly cannot be considered reasonable losses, and such trading management will not result in long-term profits.

Traders should learn to accept losses reasonably to achieve long-term profits. The rational way is by always using stop loss on every trade conducted. Every time you open a trading position, always determine the stop loss level automatically. Thus, you no longer need to struggle to determine the exit level when you realize your position is wrong. This also allows you to determine the risk from the beginning so that if your entry position proves to be wrong, you can immediately close the loss before it becomes bigger.

When entering a position, you can determine the maximum risk value you want by using a percentage of your equity. For example, if you only want to lose 1% of your equity on a particular trade, you simply multiply your equity by 0.01 to get the stop loss value in currency units. Then, by dividing the stop value by the pip value, you will get the stop loss value in pip units.

In practice, there are several ways to determine stop loss, such as by observing price movement patterns, market volatility, or using the Average True Range (ATR) indicator. However, it is important to remember that after determining the stop loss level, you should not change it in the hope that the price movement will reverse. This will increase the previously determined risk and may lead to greater losses.

By setting the right risk/reward ratio, you can help control your losses and achieve more consistent trading results.


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