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The Professional vs. Amateur’s Reaction to a Losing Trade

The Professional vs. Amateur’s Reaction to a Losing Trade

Tyler Yell, CMT, Currency Strategist


How can a professional take the same trade as an amateur yet end the trade at a profit or be in a better position psychologically after taking a loss? Every trader experiences losing trades. Professionals and amateurs may have similar outlooks on a market, but oftentimes they end up with different results. This article will review the main difference between a professional and amateur’s perspective including a current trading example.

Focus on your system’s effectiveness and not individual trade outcomes.

If you plan to become a successful trader, you will need more than one trade to make a career. Lessen the impact that each individual trade has. That way, you can accept losing trades without losing sleep.

Do not be afraid to exit when you notice the market moving against your trade outside of your accepted risk. Amateurs often become emotionally married to a losing trade when the market moves against them and they’re not ready to accept the loss. They keep the trade open and try to propose to themself why it’s a good idea to stay in as the market continually rejects their idea.

Being attached to the outcome of every trade is emotionally and mentally draining so take a broader view so you can relax.

The professional mindset when approaching the market on the front end (pre-trade) and back end (post-trade) is calm and mechanical in nature. A state of Zen-like focus is present at all times because the professional accepts the risk and is ready to exit if the market tells them they were incorrect.

What surprised me from the start was how calmly the professional accepted wins and losses well within their money management system. I remember watching a fund manager steadily exit an oil trade that went against him 3% of his account equity. His ego didn’t get in the way. He quickly exited the trade because it was clear to him the market didn’t agree with the reason he got into the trade. Had he stayed in the trade, the market reversal would have eaten over 10% of his account equity which is unacceptable to a professional and weakens the sustainability of his trading career.

What was more important to this fund manager than being right and trying to force a winning trade?

He was focused on honoring the system that gives him an edge over the long run and never puts all his eggs in one basket by allowing a single trade to make or break his day, week, or month.

This is difference in the professional vs. the amateur mindset. The amateur is only focused on the trade at hand. The professional focuses on the system and keeps it super simple.

A system consists of the pairs you’ll be focusing on, the money management you use and the indicators that you have a unique ability for reading and acting on. This is how you will create an edge over the long run.

To see these diverging mindsets play out, let’s look at a current set up on AUD/USD on my favorite chart, the 4H:

(Created by Tyler Yell)

We’ve identified three plausible entries based on a 21 period moving average and candle stick analysis. The problem for the amateur occurs when he sees the market is no longer trending as per the moving average and he stays in the trade after entry #3. By focusing on the trade alone, the amateur often fears booking the loss now more than using a poor system. Their “system” becomes one of hope and doesn’t allow the edge of a strong risk: reward ratio and high probability set ups to play out over time.

The professional mindset is mysterious to an amateur in their ability to seemingly not care about the money at risk because they accept the risk of the trade within their money management system. With 100% acceptance of the risk, they can flow freely and never be angry with what the market does next. I call this remaining fluid, which is common among the professionals approach to a market like FX.

Next: Trade Management (9 of 50)

Previous: How Much Capital Should I Trade Forex With?

---Written by Tyler Yell, Trading Instructor

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.