Today, we are going to talk about how
to deal with losses because
when trading,
there will be losses.
And I'm going to show you today how to
deal with it. [MUSIC]
3 things you need to know about
losses. First of all,
when trading,
thing number 1, losses will
happen.
They are part of trading.
Yes, you will have winning trades
and you will have losing trades.
And this is very important because as
humans, we are not wired to
accept that there will be losses.
We think that this is failure
and it means that we failed.
But this is not the case.
You will have winning trades
and you will have losing trades.
You have to be able to accept the
fact that there will be losses.
Now how do you deal with them?
Well, this is where the second
thing you need to know about losses,
you've got to keep them small.
My rule is: never risk
more than 2% of your account
on any given trade.
If you have a $5,000
account, 2% would be $100.
If you have a $5,000 account,
you should be okay losing
$100 on a given trade.
If not,
trading is not for you.
One of the reasons why people,
mainly traders struggle
to deal with losses is because they let
the losses become too
big.
And there's is a challenge, of course.
If you have a $5000 account
and you have one trade that
makes you lose $2,000,
of course,
you have a problem dealing
with losses,
but if you keep your losses small
and there are only 2%
of your account... Think about it.
You could have 5 losing
trades in a row
and you're still only down 10%
on your account. So,
let's run the math. If you have a $5000
account
and you're risking a $100
on any given trade.
If you have 5 losing trades in a row,
you're only down $500.
You still have $4,500
and you should be OK
with that. The 2 things,
we already talked about losses.
First of all, they will happen.
Second thing,
you've got to limit your losses.
Keep them extremely small.
And the third thing,
you need to find a way to make more money
on your winning trades than you lose
on your losing trades.
And typically this is
with a Trend Following Strategy.
A Trend Following Strategy means
that you're not trying to pick
bottoms and tops,
that you're waiting for a trend.
And then you use the momentum
and this shall carry you forward.
So, this is how you can risk
$100 and then trying
to make $200.
And when you do this,
when you make more money on your winning trades
than you lose on your losing trades,
you could be wrong half of the time
and still make money.
Because think about it,
if you lose a $100 on
your losing trades,
and you have five losing trades,
you lose $500.
And if you make $200 on your
winning trades and you have five winning
trades,
you make a $1,000.
Lose $500,
make $1,000.
You still have $500,
even if half of your trades are losing trades.
In summary,
how do you deal with losses?
First of all,
you have to accept the fact that there
will be losses.
Second,
you have to keep them small
and as a rule of thumb,
I recommend that you never risk more
than 2% of your account
on any given trade.
Number 3,
make more money on your winning trades
than you lose on your losing trades.
You can swing for the fences,
risking $100 trying to make
$500,
$1,000. You see,
that's not very likely.
Aim for small,
but consistent profits.
Hope this helps.
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So, this was how to deal
with losses in less than five minutes.
If you know anybody who might benefit from
this video, feel free to share it.
If you would like to meet us live
in person,
go to bootcamp.rockwelltrading.com because
we are doing bootcamps across
the country where you can join us
and we'll show you exactly
how I personally trade.
Until then, take care.
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