If you not new to this trading world, you must be aware of the fact that it is not very easy to make money in the investment business. As a trader, one has to go through drastic trading emotions to cut a deal to earn profits. Let’s say, your trade is failing and it is up to you to decide what to do. You decided to close the trade to reduce the loss amount from getting big. As a result, you saved yourself some penny and at the same time, you kept your loss in the limit. Now, that is a good day to reduce your loss. Because in trading, it is always better to lose in smaller amounts than in larger amounts.
The main reason behind this is that if you face a big loss, this may add debts to your trading accounts. And often a big loss cancels out the profits that were made earlier. So, compensating for a loss becomes a huge deal for the traders in the United Kingdom.And they need to suffer a lot because of this. Such situations give rise to fear and anxiety in a trader’s mind. They often suffer from indecision because of the fear of losing. Now, it is completely fine if a trader makes some losses. Well, it is also part of learning. However, a trader should also know the steps as to when to call a trade-off. For that traders can apply some methods which can help them to limit the loss before it grasps and eats the investment.
So here are some of the basic methods a trader can use to reduce loss limit.
Differentiate between your essential and trading capital
We know that all traders are not professional and some are on a part-time basis. Well, there’s no problem with that as long as a trader knows what he is dealing with. One should always keep in mind that the trading capital should never come from the essential money that one uses for meeting his daily needs. The essential money is the backup you need for your survival. If you trade with that amount, you may be lost or gain. If you make a profit, that’d be great. But in case you make a loss, you will have to suffer in your daily life. So, it is better to stay away from trading with essential capital. Your trading money should be the amount that remains extra after meeting your daily needs. And always get more info about the trading conditions before opening a premium account with great broker like Saxo.
Find your risk tolerance level
Many traders justify taking risks of up to 2% and prefers not to exceed that line. It is because the bigger the risk limit, the bigger is the chance of losing. That’s why a trader needs to first determine the risk limit he wants to deal with. Since all traders have different mindsets, it is better to fix a risk tolerance level based on the investment and mindset of a trader.
Leverage is a facility provided by the banks to facilitate the traders with more capital to trade with. Now you may think that having a high leverage account is amazing. But in reality, the higher is your leverage, the bigger is losing amount in case you fail a trade. That’s why it is always safe to trade with a lower leverage account where the risk level is also low. This is a very important factor as your profit and loss factors are dependent on it.
One of the most powerful ways to reduce loss is to trade with the trends. The trends are the direction of money movement. So, if you learn about the trend you will be able to identify where the market is going. And based on that analysis, you can come up with the best decision of making a trade. This will also lower your percentage of losing.
So, as a trader, your focus should not only remain on making profits but also lower loss levels. And if you are clever enough to hit some strategies, you can reduce the loss level many times.