Psychology of Trading – Discipline to Cut Loss

An important aspect of trading psychology is cutting losses. When you develop the discipline to cut your losses short, you learn to trust yourself and will devlelop the ability and confidence it takes to perform well in all market conditions. When you are losing, it is time to be very business like, no emotion. Your uncle line is what it is, there is no hesitation. Put in a hard stop if you have to. There should be nothing to think about here.

Keeping you stop losses within you pain threshold can make all the difference between enjoying your trading and being full of stress and anxiety while you trade. Most professional traders risk a fixed percentage of their trading account on each trade. These percentages can range from 1/2% up to 2%. This decision should be based upon your track record and experience, risk tolerance, trading acount size, trading acount growth objectives, and the volatility of the markets you choose to enter.

Technical analysis lends itself well to sound money management because it is based upon price and areas of supply and demand. It is an objective approach to the markets. Your stop losses should be placed based upon these objective areas. This approach takes out the guesswork and the emotion of fear, once you have developed the discipline. Below is a trading idea that demonstrates planning, objectivity, and discipline.

Reasons Why You Should Develop Ironclad Stop Loss Discipline:
To avoid even larger losses.
To avoid missing out on other higher odds trading opportunities.
Growing losses affect the effective management of other trades.
It ties up captital that could be earning a return elsewhere.
To lessen stress and fear of loss, to enjoy your trading.

Trading discipline can be learned. Setting objective goals for each trade as in the example above it a great place to begin. Make sure you have a good risk reward ratio. The trade in the example above has a 2:1 Risk Reward Ratio. Find an accountability partner who can review your trades for you. If you can’t find a partner, make sure you keep an accurate trading log that reveals all of your errors.