One of the common things, which is one of the causes of
facing huge losses in trading and most commonly seen in
beginners is – “Adding to a losing Position”
By this what I mean will be more clear to you through an example
Imagine you have a chart open in front of you. You did some
analysis and found that the market will go up and you opened
a long trade.
But, like sometimes, the market moved in other direction and you
started facing some loses.
It happens with all the traders. This is not the point of concern
But, a lot of traders in such scenarios, fall under the grip of emotions
and feel that the market will soon reverse. And to coverup their
existing losses, they open another long trade (in our example). This is
what I call as “adding to the losing position”
If you feel that you are doing something like this, then
YOU ARE MAKING A BIG MISTAKE.
Why? Because such trades reflect the mentality of trader, which is
that this trader is not ready to accept losses. So there is no way
he or she will ever follow money management.
I still remember the USD?JPY run that happenned in 2005. That was
a huge bullish run that lasted for few weeks. Market moved as many
as 2000+ pips.
I remember after 200+ pips run, some of the experts started saying that
the market can reverse anytime now.
That didn’t happen. When the bullish run reached 600 pips, more experts
started saying that the market should reverse in next few days.
That didn’t happen either..But that didn’t stop the experts and analysts
who kept on predicting after every 200-300 pips that the market will
reverse..
Not that their analysis was terribely wrong, but sometimes such strong
runs do happen
Imagine if such trader who adds to losing position is caught on the
other side of the trade. What will happen to him?
Is it a possibilty that such trader will lose his entire trading balance?
Oh yes, thats a huge possibilty. One such strong trade can break the
trading account balance.
See, how a trader trades is a clear cut indication of how he thinks.
If you are considering trading to be a business, you need to start
thinking like a mature trader.
And a mature trader always follow money management!
Article By
Rahul
