13 Ways to Avoid Losses

But First – How to Lose at Trading

If you’ll permit me, this week I want to have a little rant. 13 ways to avoid losses listed below are entirely my own thoughts about the reasons why traders struggle at, what appears to be, a really simple task. After all, the chart in front of you moves up and it moves down. It can’t be that difficult to grab a few winning trades on a daily basis, surely?

You may agree with these points, or you may disagree strongly. Either way they are simply drawn from my own experiences. I have written them down as they came into my head, with not much thought as to constructing a flowing narrative. Ahh well.

So what right have I to get up on my soapbox and talk about what works and what doesn’t?

Well, I must add that I have some experience of all the points listed below at some time in my trading career. Some more than others.

Have I lost money? Hell, yeah. Three accounts to be precise. (Many thousands of pounds). There was absolutely no doubt that I knew how to lose..!!

Eliminating them from my trading was no easy matter as it turned out, but it was fairly certain that results would be much improved if I could.

It’s just a matter of identifying what is definitely not working for you. If it isn’t working and is costing you money, then it has to go – it is as simple as that. Finding out what does work is no simple matter either, but at least getting rid of what doesn’t is a step in right direction.Black Dog avoid losses

My own story was to identify where I was going wrong, where I was making the same mistakes, and what was having a bad influence on my trading whether I enjoyed using it or not. Addressing the problem areas would surely see my star rise. Wouldn’t it?

My star began its ascent when I just stopped what I was doing and started to THINK.

How to Lose (part 1)

What’s that famous number again … 95% of traders lose?

I’m pretty suBlack Dog avoid lossesre that 95% is a little conservative, it may be possibly higher. Probably closer to 98%!

Now, if that frightening figure of losing traders frightens you, as it frightens me, then surely it makes sense NOT to do what they are doing, and certainly NOT use what they are using. Wouldn’t you agree?

I’m sure that you would. So what can be done?

[These blue squares are bullet points that I have pinned next to my computer]

Black Dog avoid losses

Well, we could think outside the box and do something different, that’s for sure.

When those 95%ers finally pack in the trading game because of their frightening losses there is a fresh influx of new traders all wanting to get to grips with the markets.

The problem is that they will do exactly the same, and they will use exactly the same tactics that the failed traders have done and used before them. And their fathers before them, etc. And on it goes…

It is a cycle.

There are many, though, who advocate that you must learn how to lose before you can learn how to win, and maybe there is some credence to that line of thought. Losing hurts, especially when there is money involved, which makes it a great way to learn a lesson.

I’m not so sure that I want to learn how to lose, to be honest. There must be other ways?

Well, I can only talk about what I have been through and how I overcame the obstacles. The main thing I did very frequently was to THINK.

I also did hundreds of hours of chart time – not trading, but studying charts. I simply did not want to do what everyone else was doing.

So to get us started, here is my first little thought that got me going. You should really think about this yourself too. These blue rectangles are the conclusions I came to, hopefully they will help you in your trading too.

Black Dog avoid losses

How to Lose (part 2)

Be a trader, not a gambler. You can trade or you can go to the casino. But not trade and gamble at the same time unless you have money to throw away.

To be a trader you MUST have EVERY part of your trading well-planned out. I suppose the professional gambler also has a plan, but that is why he is a professional. The professionals take it seriously. They also have bills to pay.

Which is the main point of this section – you have got to take trading seriously.

I suppose that in my early days I didn’t take things as seriously as I should have. The result? I think you can safely guess. Time to put the thinking cap on.

Eventually, over a fairly lengthy period of time with one or two ‘light-bulb’ moments along the way, it struck me that what I was trying to accomplish was actually coming true and things were indeed starting to look up. If I cracked one problem it usually led to the solving of another, or they would be solved together. Everything was intertwined so that solving one invariably pointed to the solution of another.

So, my 13 ways to avoid losses whilst trading…

1. Write Down Your Trading Plan

Black Dog avoid lossesThis one hit me fairly quickly. Trading without a well-documented Trading Plan is a sure-fire route to ruin. It still surprises me to discover how many traders do not bother to WRITE DOWN their plan of action. There are simply too many aspects regarding the business of trading to go at it half cock in the hope that everything is at your beck and call in your head.

Constructing a trading plan and writing it down will be remembered far better than muddling through during the trading days. Most trading plans take years to complete, if they ever are.

To stress the point, my trading plan forms the essence of Black Dog and covers about sixty pages. It is the best way to avoid losses. I am fairly confident that it will protect and assist me with anything that the market throws my way, knowing that learning never stops.

From being in a fit state to trade, to the workspace, hardware and software, brokers, charts, the act of trading itself, to signals, strategies, stops, targets, exits, after the trade, stake sizing, withdrawing, trade management… wow, the list goes on.

We have a module devoted to the Trading Plan at Black Dog, it is THAT important. The reality is, with trading, you NEED to be a master of all your tools.

Black Dog avoid losses

Nothing less will do. Think about it.

2. FF – Forget Forums

Some people may not like this, but here is another one that came to me fairly early on in my trading career. It didn’t take me long to realize that I was spending a lot of time on two of the biggest forums with people who were teaching me one salient point – they were teaching me how to lose.

To be honest, it was the blind leading the blind.

It has been many years since I last set foot in a forum and have no plans to go back.

Black Dog avoid losses

Yes, there were many excellent traders who showed up occasionally, but even they tended to keep a low profile. This was actually one of my better decisions.

3. Cure Yourself Of The Holy Grail Syndrome

I had heard this cliché mentioned so many times on the forums where everyone seemed to have that indicator fetish, and still do, in the hope that someday they will find the one indicator that will solve their trading woes. Or maybe a combination of indicators. They are unfortunately in that never-ending search for the holy grail indicator that doesn’t exist. It simply does NOT exist.

Now please don’t get me wrong. As mentioned up above somewhere, I was a member of the search party too. But there comes a point where reality bites in, (read: think).

Any Holy Grail indicator would certainly NOT be for general consumption. Add all our trading accounts together and this amount would maybe, I say maybe, cover the cost that someone would pay to keep such an indicator hidden.

The holy grail of trading is definitely to be found between your ears. That is where, if at all, the holy grail of trading is situated.

Black Dog avoid losses

You can read more here forex-and-the-holy-grail

4. KIBSBlack Dog avoid losses

You could argue that this should be a part of the section above, i.e., the Holy Grail.

A true ‘light bulb’ moment.

Most people say KISS

Keep It Simple Stupid (Sir)…

and then promptly forget about it and pay it no heed.

Big BIG mistake.

At Black Dog we prefer to stress the importance of this; Keep It Bloody Simple!

We’ve all seen the charts of some traders that resemble a Christmas tree, or a Jackson Pollock, or quite often a bowl of spaghetti. Just about untradeable. In many cases you cannot even see the candles!

We even have members who add this and that to their charts, ending up with a pizza. It’s the slippery slope, an infectious, contagious, untreatable disease.

Almost.

I’ve mentioned this in many places: it takes several wild stallions to drag another indicator onto my charts. I fight it tooth and nail. It just isn’t going to happen.

Black Dog avoid losses

This is another one for you to think about. But think deeply. For me it was a high point.

5. Do Not Acquire An Indicators Fetish

You will see now how these points are intertwined. It’s a very good idea to keep your charts as clear as possible. Have only those indicators that do a good job for you, anything less is not good enough and you must rid yourself of them.

Time again for the little grey cells to work…

Imagine our friendly broker, what does he want? I can tell you.

He wants you to win shedloads of money off him every day so you can lounge at the poolside under palm trees with your laptop and pina colada placing trades that cannot fail.

How do I know this?

Because he provides you with just about every indicator for FREE so that you can fleece him. He actually wants you to use as many as possible. But why?

Black Dog avoid losses

Because he knows that they are absolute garbage. He knows that they DO NOT WORK.

Do you think he would provide the means, for FREE, for you to take lots of money off him?

Many brokers now provide an ‘educational’ section which teaches you how to lose money faster with these all-singing, all-dancing indicators, plus a lot more besides.

Don’t fall for it.

I wasn’t going to mention EA’s here in this post, but why not just a few words? The broker loves you to use EA’s. But why?

Fairly obvious really. There isn’t one yet devised that is profitable over a period of time. They will only cost you (big time) in the long run.

Consider this: you finally complete the programming of your own EA and after a year or so of testing it actually works and is making you a fortune. You are the only person on the planet with an EA that actually works. You open the charts in the morning and turn on the EA, at the end of the day you are wondering which new car to buy tomorrow.

But wait a second, you could earn extra by selling the EA. For how much would you sell an EA that works? The banks would certainly be interested but they wouldn’t want all and sundry to have access. They would pay millions.

And that is exactly what it would cost you to buy an EA that works. If there is such a beast.

There is a reason why banks, and such, pay very high salaries with very high bonuses to their teams and teams of traders.

Don’t fall for it.

Black Dog avoid losses

6. Don’t Believe In These Fairy Stories

This section should really be entitled ‘Voodoo’.

Yep, I’ve wasted a bunch of time on them all. Convergence and Divergence, Bollinger Bands, Stochastics, and all the rest.

Overbought and Oversold indicators? For the forex market? You have got to be joking..!!

Just imagine…  if all the single traders all over the planet placed a trade at the same time on the same instrument in the same direction how far would we move the market?

I reckon not that far, all our little trades don’t really add up to all that much in the $1.5 trillion a day market! So imagine what those big 50-100 pip moves entail? The big boys are trading millions, if not billions. And do you imagine for one minute that they are interested in yesterday’s pivot points?

These are the boys that move the markets. Take another minute to ask yourself if they even consider those ridiculous Fibonacci levels where they take half an hour to complete their analysis of their charts and numerous indicators?

A self-fulfilling prophecy? Puh-lease, don’t make me laugh!

The market does what it does. The big boys don’t give a monkeys about Fibonacci, pivots, Gann, Elliot waves, and all the other rubbish. Just trade in their direction, with them.

Black Dog avoid lossesI was into the ill-fated chart pattern syndrome too, not to mention the Fibonacci codswallop, and God knows all the other tripe out there.

There is no wonder I was throwing money away. Find any bar code that is used to price goods in the supermarket. Print out an expanded copy and place it on your charts – that works too!

Fibonacci is about procreating rabbits in the 13th century! Of course it relates to the movement of markets. Of course!

Excuse me while I head over to the Astrology charts..!!

Black Dog avoid losses

7. Overtrading Is A No-No

Yet another ‘light bulb’ moment.

I was, at one time, trading everything that moved. You name it, I had a trade going on it. More often than not, a losing trade. Something just had to be done, and pronto.

Remember, it’s still the early days where I am losing money hand over fist and I’m looking at all these points listed here to try to get some semblance of organization going. Not all at the same time I can assure you, as it took a couple of years or more to eventually get straightened out in some fashion.

To cut a long story short, once you start to ‘analyse’ twenty pairs or instruments, with twenty or so indicators on your chart, then it is very, very difficult to ‘understand’ what you are trading. Alarms and alerts going off every couple of minutes, correlation, news, Aunt Fanny walks in the room, Yellen yacking, whatever… you are not going to be able to ‘be in tune’ with the market, or avoid losses. You need to be in tune, in phase, you have GOT to be in sync.

Get harmonised – then stay there. But how?

Read on…

You will get a gut feeling for how a particular market moves if you trade it over a period of time. It is like trading with an old friend.

Black Dog avoid losses

I used to trade all the majors plus oil, gold, Dollar index, FTSE, and one or two others. In a word – I hadn’t a clue what was going on. No wonder my broker sent me Christmas cards and birthday cake. I was one of his best customers..!!

Take a look at correlated pairs. Why trade them all? Just have one. Reduce the confusion.

In fact, I found that they ALL very roughly moved the same especially with the news announcements. Drastic action was needed, though it occurred over a period of time. I now trade only ONE market and that is the Dax. If there are no trades, then there are no trades.

It’s probably the best trading move that I ever made.

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Yep, it’s boring I know but what is the alternative? You can muck around with all the pairs that you can find, with all the nice indicators that the broker likes you to use, on all the different time frames, all the EA crap, back-testing rubbish, strategy testing garbage – you know what I mean.

OR – you can be bored all the way to the bank..!!

Take your pick. If you prefer the former, then please PLEASE be on the other end of the trade to me.

8. Trade Management Is The Answer To Avoid Losses

Ultra-important and it took me a long time to nail this part of my trading and, as usual, the solution was fairly simple. This is not the place to go into the ins and outs of this important subject and, again, we devote a full module to this in our course. But if you do not employ some form of Trade Management I believe that you will struggle in your attempts to avoid losses.

The point I’d like to make here is that what is ‘popular’ in the trading world, doesn’t work. Every man and his dog seem to shout about money management, which is great but 95% are still losing. So something isn’t right?

A bank manager is the best person to manage my money.

Black Dog avoid losses

Money doesn’t come into it.

Think about it.

9. Get Yourself A Good Broker

There are many brokers that I wouldn’t go anywhere near. Especially the variable spread type. Take your time in selecting the broker for you – with relatively low spreads and decent execution speed. There are many good brokers out there but personally I prefer GKFX and have been with them for years. I spreadbet with them.

Try them out, or take a look:

The broker is your link to the markets so it is worth the time spent in getting a good one. Don’t just go with the one everybody is using. It is worth bearing in mind that the big brokers are big for a reason. They also spend tons of money in advertising for your custom and don’t want to lose you to a competitor so if you have a problem with them. Tell them.Black Dog

Don’t let them fob you off. Don’t let them get away with it.

It is YOUR money.

10. Capitalization

I’ve always been a contrary thinker when it comes to trading because all the best advice out there gives us that frightening figure that I don’t want to be a part of. So I generally try to think or do the opposite.

Whether your account is 100k, 10k, 1k, or $100 – in my view it doesn’t matter, as long as you trade to your plan and size your stakes accordingly. There is always room for growth.

There are many who say under-capitalization is a recipe for account loss. To me, it’s horses for courses. A bad trader will lose the whole account no matter what size it is. A good trader will grow any size account. My view is that it boils down to the trader, not the account size.Black Dog avoid losses

11. Avoid Trading The News

Unless you are a news trader with all the information and fundamentals to hand, it would be wise to know when news announcements are due so you can avoid being stung with a sharp movement against you. In trading the news, as with any aspect of trading, you HAVE to know exactly what you are doing.

I do not know what I am doing, so just about every attempt of mine at trading the news has failed. I give it a wide berth.

12. Apply Patience and Discipline

This is the big one.

It really need not be said that trading without the patience and discipline required will get you absolutely nowhere, no matter how good the system is that you are trading. You simply will not avoid losses. We keep shouting it from the rooftops at Black Dog. By not having the patience to wait for your signals, and not having the discipline to carry out your trading plan, then your trading can be described as a gamble. Jumping in early in trying to anticipate what the market will do next, often fails.

After a loser, or a string of losers, it is very tempting to try to win those losses back, usually as quickly as possible. This is Revenge trading. Your Trading Plan is forgotten and all your hard work is slowly flying out the window. Mother Forex is waiting for this and she will gobble you up and spit you out in bubbles..!!

Jumping in at any price isn’t trading. Set your pending order and let the market come to you.

Black Dog avoid losses

13. Avoid System-Hopping

There are some fantastic systems out there but waltzing from one to the next will have only one result. People who system-hop will never become decent traders as they just cannot settle, they never give a system a fair amount of time and effort. Basically, they are wasting their money.

Remember the ‘Forums’ mentioned above? That was where I learned how to system-hop.Black Dog

There are many system sellers and unfortunately not all of them are traders, they’re simply marketers.

Though there is nothing wrong with this there must be the support available. If I was starting out in the trading business right now I would not consider a purchase unless there was evidence of good support. At Black Dog we have e-mail, Skype, and a Trading Room as standard. This is a must.

There is always someone to help.

We have even had people contact us when they have a problem and cannot proceed with the system. “Hey, I’ve purchased Black Dog but I can’t get it to work. Help!”

Unfortunately, they have purchased from pirates hoping to get a good deal. Not so. Money wasted, again. There is nothing that we can do because they are not members, except advise them to contact the seller – not much hope I’m afraid. Not really about system-hopping, I know, but worth mentioning as a warning about pirates.

Conclusion

Remember the cycle. Traders lose and then leave trading altogether. New traders come in to fill their boots, follow their steps, lose, and leave.

Ad infinitum.

I’m pretty sure that there are a few other points that need attention to assist in lowering the number of your losing trades but we can’t avoid losses altogether. These listed here have come straight from my head (well, the list titles have, I then expanded on them from my experiences).

Just make sure you are not one of the 95% who fail to make the grade. Fight tooth and nail, but mainly THINK about what is going on.

I really hope that this post, indeed any post, will help you in some small way. If so, please let me know.

Next post: How to increase your winning trade percentage.

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