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It is a known fact that only ~10% of traders eventually make money in the stock market, while the remaining 90% keep struggling even to hit break even. Losses are a part of the game and cannot be avoided but losses on account of reckless trading are what keep traders from seeing their accounts in the green.
If you are struggling to compound your account, here are 3 tips that might come in handy for some serious gains.
Stop Revenge Trading
You might have come across terms such as “revenge shopping” or “revenge travel”, especially after the Covid-19 pandemic. It simply means trying to overdo something that you have long been deprived of. In other words, you are now kind of taking revenge to make up for the lost time.
Revenge trading is something similar wherein traders tend to overtrade after a series of losses in order to pare some part of it, and in the process, their risk management goes for a toss which further deepens their losses. So, no matter how deep your losses are, revenge trading is probably a sure way to move further away from profitability.
Robust Risk Management
While you are in deep losses, you need to focus more on protecting your further downside rather than aiming solely for profitability. In order to increase the magnitude of profits, one has to take higher risks. And technically, taking higher risks during bigger drawdowns does not ideally sound right.
Hence, try to cap your losses first and once you are able to successfully achieve this, your profitability will follow. For this, traders need to develop a risk management plan that could include parameters such as the max risk per trade, portfolio-level stop loss, max no. of positions in one sector etc. Defining limits to such risk parameters will help you to reduce your loss.
Know When to Take a Pause
Just like other things in life, sometimes taking a pause and reflecting back to get a deeper insight on what has been working and not been working so far can do wonders for your trading as well. Especially, when the market becomes a bit too much to handle, it’s always a good time to take a break.
All high-performance athletes take breaks and trading is no different. The ideal time to shut down your terminal for some time is when you see your/your system’s performance degrade during a particular market environment, such as a highly volatile one. There’s no shame in stepping aside and sitting on the sidelines till the market environment changes to your favored one.
Read More: 3 Dividend Machines to Put on Watchlist as Market Plunges!
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