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“I’m on a losing streak and I don’t know when my next winning trade will come!”
I hear your frustration and I’ve been there.
And here’s the deal, there’s no guaranteed approach to eliminate losses 100% of the time.
But it’s not all gloom and doom, because you can still minimise your losses.
In today’s episode, I’ll be sharing with you 4 useful techniques to avoid losses and turn you from zero – to hero.
So tune in right now…
Resources
The Complete Guide to Breakout Trading
Support and Resistance Trading Strategy — The Advanced Guide
The Trend Reversal Trading Strategy Guide
The Complete Guide to Stop Loss Order
Transcript
Hey, hey what’s up my friend?
In today’s episode, I want to talk about how you could avoid losses in trading.
Here’s the thing:
There’s no way that you can 100% avoid losses in trading. That’s not how it works.
The closest thing that you can do is to trade without stop loss but it’s only a matter of time before the market reverses so much against you that you blow up your trading account. So clearly, that method is not viable.
In today’s episode, I will share with you 4 techniques you can use to avoid losses in trading. It’ll not eradicate your losses totally, but it should reduce the frequency of it.
Let’s get started…
1. Don’t chase breakouts
I know it’s tempting to chase breakouts.
“Look, Rayner, look at how bullish the chart is, the candles are all green and strong, it’s time to buy, buy, buy!”
But there are 2 problems in doing that.
Firstly, whenever you chase breakouts, that’s when the market is about to make a reversal or a strong pullback.
Look at Bitcoin when it made its meteoric rise to $20,000.
If you look at the $15,000 to $17,000 price point, the candles are so huge, it’s so bullish, many traders would think that’s the right time to buy.
But the problem is the market has moved too fast, too soon.
It’s very ripe for a strong pullback or even a reversal altogether, there’s the first problem.
Secondly, there’s no logical place for you to set your stop loss.
If you look at the chart of Bitcoin at that point in time, you’ll realize there’s no logical place to set your stop loss. The nearest stop loss at the previous swing low is around $6,000 or $7,000 away.
I don’t think any traders will want to withstand a $6,000 or $7,000 stop loss on Bitcoin.
Because if your stop loss is $5,000, for the market to make a 1-to1 risk-reward ratio in your favour, you’ll need the market to move $5,000 away from your entry price. It’s pretty unreasonable if you ask me.
So don’t chase breakouts.
Next…
2. Don’t trade into obstacles
Let’s say you’re looking for a long opportunity. You have to open your eyes and see that you’re not buying smack into a swing high or a resistance.
Because if you buy into resistance, that is where potential selling pressure could come in and push the price lower.
You’re putting the odds against you, so don’t buy into resistance, don’t short into support.
You want to make sure that there’s at least a minimum of a 1-to-1 risk-reward ratio. At least there’s some potential meat for it to move in your favour before it faces an obstacle and reverses against you.
Hopefully, by that time, you would have exited with a profit already.
So don’t trade into obstacles.
Moving on…
3. Let the market show signs of strength or weakness before entry
Imagine the price on the Daily timeframe has retraced into an area of resistance. Do you want to be shorting immediately? No. Why is that?
Because resistance is an area on your chart. You’ve no idea at which point the market is going to reverse. Is it going to reverse at the early part of the resistance? Or in the centre of resistance? Or is it going to do a false breakout before it reverses? You’ll have no idea.
I would rather you let the market show you its hand, to show you signs of weakness before you take a short trade. You can use multiple timeframe analysis to help you.
For example, if you’ve seen a strong move into resistance on a Daily timeframe, you’ll go down to the lower timeframe, let’s say the 2-Hour time frame.
You’ll notice on the 2-Hour timeframe, as the price approaches resistance, you should see a series of higher highs and higher lows. That’s most likely the case.
And you don’t want to be shorting just yet because you can still see a series of higher highs and higher lows.
Let the market show signs of weakness which will look like a series of lower highs and lower lows. Only then, you can consider taking a short trade. Now there’s a much higher probability of the price reversing lower from there.
So the third technique is to let the market show signs of strength or weakness, depending on your trading direction.
4. Set proper stop loss
Traders often set stops below supports, or above resistance and they wonder why they keep getting stopped out.
Look at your chart. Notice how often the price trades below support then get rejected before going up higher?
How often does the price trades above resistance, get rejected and then comes down lower?
That’s a phenomenon that happens regularly.
This means that if you put your stop loss just beyond this level, you’re asking to get stop hunted.
What’s the solution? You want to set your stops away from the market structure.
For example, if you’re long at support, don’t put your stop loss just below support.
Give it some buffer like 1 ATR below support. This way, even if the market were to reverse lower and hit the lows of support, your stop loss will not be hit.
You’ll still be in the trade unless the price hits down lower and really penetrates deep into support. Then that’s probably where the support is really broken, and you should be out of the trade.
So give your stops some buffer. I used 1 ATR above resistance and 1 ATR below support.
Those are the 4 techniques that you can use to help you avoid losses in trading.
I’ve come towards the end of today’s episode and with that said, I’ll talk to you soon.