A Simple Yet Overlooked Way to Reduce Trading Losses
There are four broad ways to improve your trading results:
- Increase the size of profitable trades
- Decrease the size of losing trades
- Increase the percentage of profitable trades
- Increase the number of trades you open (once you have a profitable Trader’s Equation)
Each of those can be further broken down into subcategories. But if you think about it, any improvement you make directly or indirectly impacts one of these four areas.
Which of those areas have you worked on improving the most?
I can almost guarantee you’ve seriously neglected at least one of them. Can you guess which one traders neglect the most?
If you guessed “decreasing the size of losing trades,” you’re spot on.
It’s similar to what we see in business. Most companies focus on increasing their revenue as a way to improve their profits, but many overlook the possibility of reducing their costs. As a result, there are often simple inefficiencies and quick wins that go unnoticed.
This is what traders do too. They focus on increasing the size of profitable trades, or improving their success rate. But reducing the size of losses is often the low-hanging fruit that can…
