HOW CAN YOU NOT LOSE YOUR MONEY IN TRADING?
Updated: Jun 28
Today when the world is showing up new trends in the financial market everybody is planning to invest and secure their plans. Gold trading has seen an upper hand since the mid of 2019 and has been growing so far.
Ever since then, we have seen a chunk of people actively involving in Gold trading. But when it comes to investing, people often fear losing their money. In this blog, we will emphasize the tactics on how to trade safely without fear of losing any money.
Don't think your psychology plays a role in your trading? Think again. Every day, we do thousands of things we don't consciously control. This is a good thing most of the time, as we'd never get anything done if we had to think about taking each breath, walking, or moving our facial muscles to smile.
But the same auto-pilot programs that help us navigate the outside world harm us when it comes to trading. We can't turn these programs off, but we can become aware of them and take steps to re-program ourselves.
At Seven Capitals we follow the 7 Golden rules of how to trade securely with profits.
1st: Knowing Vs. Doing- Our minds often convince us that if we know something, we could do it if we wanted. Take losing weight. Most people know that improving their diet and more exercise will help them lose weight. Yet rather than follow this, many people seek out new information instead—the latest fad.
Seeking information is often just a rationalization for not doing work that needs to be done. It feels productive, but it isn't. Similarly, there are basic guidelines traders should follow to succeed, but which often go ignored. "I already know this," some may say. Yes, but have you done it?
These guidelines include making a trading plan, focusing on only one or two strategies, not deviating from the trading plan (so you can see what works and what doesn't), and trading in a demo account until the plan proves consistently profitable over many trades.
2nd: Lottery Syndrome- This involves seeking out big payoffs, but typically with no real well-defined strategy. Gambles are taken. Money is thrown at the market, hoping to hit a big score, but losses just keep adding up before payday comes.
The error here is related to availability bias. Because it is very easy to find a price move in hindsight from which you could have profited handsomely, it makes it appear easy to pick big winners. They seem to be everywhere! It's easy to forget that there are thousands of potential assets to trade. And you not only need to find the right one, but you also need to trade it at exactly the right time.
3rd: Protect Your Trading Account- While there is much focus on making money in trading, it is important to learn how to avoid losing money. Proper money management techniques are an integral part of the process. Many veteran traders would agree that one can enter a position at any price and still make money—it’s how one gets out of the trade that matters.
Part of this is knowing when to accept your losses and move on. Always using a protective stop loss—a strategy designed to protect existing gains or thwart further losses through a stop-loss order or limit order—is an effective way to make sure that losses remain reasonable. Traders can also consider using a maximum daily loss amount beyond which all positions would be closed and no new trades initiated until the next trading session.
4th: Start Small When Going Live- While there is much focus on making money in trading, it is important to learn how to avoid losing money. Proper money management techniques are an integral part of the process. Many veteran traders would agree that one can enter a position at any price and still make money—it’s how one gets out of the trade that matters.
Factors like emotions and slippage (the difference between the expected price of a trade and the price at which the trade is executed) cannot be fully understood and accounted for until trading live. Additionally, a trading plan that performed like a champ in backtesting results or practice trading could, in reality, fail miserably when applied to a live market. By starting small, a trader can evaluate their trading plan and emotions, and gain more practice in executing precise order entries—without risking the entire trading account in the process.
5th: Treat Trading as a Business- It is essential to treat trading as a business and to remember that individual wins and losses don’t matter in the short run. It is how the trading business performs over time that is important. As such, traders should try to avoid becoming overly emotional about either wins or losses, and treat each as just another day at the office.
As with any business, trading incurs expenses, losses, taxes, risk, and uncertainty. Also, just as small businesses rarely become successful overnight, neither do most forex traders. Planning, setting realistic goals, staying organized, and learning from both successes and failures will help ensure a long, successful career as a trader.
6th: Trust yourself, but not too much- If a trader manages to have a positive balance between the small gains made and the losses achieved, he acquires confidence in the strategy used. But there is a risk of a sense of omnipotence, for which it will tend in most cases to gradually increase the capital invested in every single operation and bringing it to situations where it should not but be.
At that point, even if the losses begin to exceed the winnings, his confidence is not greatly affected, and the trades can increase dramatically to make up for the losses. Due to the increased and unjustified exposure to risk, losses tend to increase if the trader does not have the intelligence to stop and make a critical analysis of his work.
7th: Knowledge of the markets makes the difference- To be a successful trader, you need to operate on a small number of markets, specializing in them and monitoring them. On these it is necessary to try to know as much as possible, analyzing historical series, correlations with other products and/or markets, and keep up to date on the news. You then need to choose a few tools and strategies to work with and learn how to use them well.