TGIFF #003: You Must Know When to Fold Em

What do you think is the most important skill that a trader must develop?

Is it the market’s understanding? Is it analytical skills? Or maybe numeracy skills? 

While these skills are essential to be a winning trader, one of the least talked about and the most crucial skills is the dispassionate ability to cut your losses.

Deciding what is the best way to do it for you personally is less important than having a way to do it and do it consistently.

But, how do you figure out if you need to cut losses?

Of all the trading traps, the one thing that can cripple any trader the quickest is the inability to know and admit when your trade is simply not working. 

This goes much deeper than simply saying, "Okay, I was wrong," or "I can wait a little longer before I decide what to do," all the while absorbing unnecessary heat till the trade comes around, or any other manner of defending your inaction in the face of your equity depleting.

Humans! We fundamentally are a little complicated when it comes to confessing that we were wrong in the first place. We literally suck at it. But here you have to make a prudent choice.

So, what should you really do?

It is my opinion that exiting a trade could be, and is, overwhelming. 

Because at the exit, you must decide whether to break even, make a profit or book a loss. Without a doubt, the hardest thing for a trader to do is to be able to make an unemotional decision of manually exiting the trade when it is going against you. 

And this happens because by manually exiting a trade before it hits your stop loss, you are taking a voluntary loss and who in the world likes to take a voluntary loss?

However, there are times when you must make the tough decision because that’s the best course of action particularly if you are on the wrong side of order flow.

Don’t get me wrong!

I’m in no way suggesting that you should liquidate a trade as soon as it starts showing feverish symptoms. What I am saying is that when you start a trade, you MUST clearly define, as part of your trading plan, at what point you will take a voluntary loss.

In my concluding note,

I must tell you that I know exactly when’s the time for me to manually exit the market. I know what must happen on the charts for me to take such a step. 

And I can tell you that 90% of the time, it turns out to be the BEST decision to make.

As traders, we have all sorts of trading plans for various scenarios. 

So why not have one in case we were to hit the abyss? 

If we are already prepared, we might just land straight on our feet? Who knows, right?

Every Friday, I’ll share tactical trading tips to keep your forex boat afloat. 

See you again next Friday.

Till then, keep trading and have a wonderful weekend!

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