3 tips to minimize losses

Cut your losses. Why?

As a beginning daytrader, it's tempting to focus on profits. Professionals know that limiting losses might be even more important. If you're new to trading, learn first how to minimize losses before thinking about making profits.

Research shows that approximately 90% of beginning traders lose 90% of their capital within the first 90 days of trading. About 85% of all traders worldwide never become profitable anyway. This sounds harsh, but there's a clear reason: learning to control your emotions takes time and practice. Emotional mistakes like FOMO, overtrading, and revenge trading are made by every trader, and as long as you don't have this under control, it will cost you money regardless. In the beginning, you'll make these mistakes anyway—that's part of the learning process. By first focusing on limiting losses instead of chasing profits, you give yourself the space to learn to recognize and overcome these emotional pitfalls without blowing up your account.

1. Only trade assets with high liquidity

Low liquidity means there are few buyers and sellers active in the market. This has direct consequences for your trades: your orders may not be executed immediately at the price you expect. Moreover, spreads (the difference between buy and sell price) for illiquid assets are often much larger, which directly costs you money when opening a position. Slippage, the difference between the expected price and the actual execution price, also occurs more frequently and can significantly impact your profit margins. Finally, illiquid markets are more sensitive to manipulation by large players, causing prices to move suddenly without fundamental reasons. By only trading highly liquid assets, such as indices, large stocks, or forex, you avoid these problems and maintain more control over your trades.

2. Never risk more than 1-2% of your account

Many new traders lose their entire account because they take positions that are too large or forget their risk management after a loss. Revenge trading, immediately trading again after a loss to make up for the loss, is a classic pitfall. Emotions then take over: frustration, anger, or the feeling that you "deserve" profit lead to impulsive trades that are far too large. The dangerous thing is that this can happen very quickly: within a few minutes, a series of bad decisions can completely blow up your account. By limiting your risk per trade to 1-2% of your account, you protect your account. Even if you lose self-control, place revenge trades, and consequently lose multiple trades in a row, your account remains intact. With a small dent in your account and a big dent in your ego, you can start again the next day without further financial damage.

3. ALWAYS use a stop loss

A stop loss is your safety net: it automatically closes your position when the price reaches a predetermined loss level. Without a stop loss, you risk a losing trade getting out of hand and losing much more than you had planned. Therefore, always use a stop loss with every trade you place and never move it against your trade! It's tempting to widen your stop loss when a trade is losing, because you hope the price will come back. However, this is a dangerous mistake: you increase your loss and go against your own trading plan. If your stop loss is hit, the trade simply didn't work—that's part of it. Accept the loss, learn from it, and wait for the next opportunity. A stop loss is an essential part of professional risk management.

Conclusion

Whether you're doing daytrading or swing trading: it's a marathon, not a sprint. You'll lose trades regardless, and you don't become profitable over a day, a week, or even a month, but over the years. By consistently following these 3 tips, you build a solid foundation for long-term success. TradeLogger helps you with this by accurately calculating all your statistics and helping you maintain overview.

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