How do you deal with a losing trade?  The answer to this question reveals an incredible amount about a trader.  We all know the industry statistic that 90% of traders fail, lose money, and give up trading.  Only 5% of traders make consistent gains in the market.  That is quite a staggering figure.  That means that if you pack 20 aspiring traders into a room, only 1 is going to make it.  Although there are several leading reasons why most traders will fail, one of the least discussed reasons is an inability to properly handle losing trades.

Now, we are not referring to the ability to try to minimize losses by using a stop loss.  We are not talking about trade management at all.  In this article, we are going to discuss how a trader ought to handle a losing trade after the losing trade is closed out.

Unfortunately, many less than stellar educational resources and e-books on the web encourage new traders to simply forget about a losing trade and move on as quickly as possible.  This is not the best and highest use of your losing trades.  The best forex brokers will offer transaction history reports, so you can print out your losing trades and analyze them.

There is Gold In Those Losing Trades

The truth is that there is gold in your losing trades; however, you cannot see it at first glance.  You will have to dig a bit to find it.  When you take a trade and it ends up being a winner, what do you learn from that?  Most likely, not much.  When you conduct your analysis and find a trade setup that matches your criteria and take the trade, if the trade works out, you simply learned once again that you have a good strategy.  The trade did just what you thought it would—that’s why it’s a winner!

However, when you conduct your analysis and find a trade setup that matches your criteria, but the trade doesn’t work out, something has happened that you were not expecting.  But if you simply forget about your losing trades and try to move on immediately, you will never find the possible deeper reason for why your trade was a loser.  By examining your losing trades, you will most likely begin to identify all sorts of causes, and by repeatedly conducting this exercise, you may begin to notice patterns.  Let’s use an example to illustrate this point.

Bob The Counter-Trend Trader

Bob trades a simple range-expansion reversal strategy.  That means that when a currency pair reaches its average daily range, then Bob looks to fade the intraday momentum and trade price back into its daily range.  In other words, let’s assume EUR/USD has been moving up all day, and let’s also assume that EUR/USD is generally moving about 130 pips per day in current market conditions.  As EUR/USD comes close to moving 130 pips on the day, Bob is going to be looking for strong areas of overhead resistance where EUR/USD may turn and reverse back down for a small scalp trade.

This strategy works great, and Bob is making consistent gains in the market.  However, during times of increased volatility, when a currency pair moves beyond its ADR before 9:00 am est, Bob has noticed that his strategy does not perform well because when a pair gets overly volatile, it can move well beyond the ADR.  Thus, after suffering losing trades consistently when trying to fade a currency pair when it moves its ADR before 9:00 am, Bob has realized that he can only execute this specific strategy after 9:00 am each day.  This keeps Bob out of potential losing trades before he takes them, and it is because he analyzed his losing trades.

There is gold in your losing trades.  Do not let them go to waste.

I called it the “Battle Of The Tech Titans,” and in this short video I explained that we felt the relationship was changing between Apple, Inc. (NASDAQ_AAPL) and Research In Motion, Ldt (NASDAQ_RIMM). I detailed a strategy of approaching this market using a trading strategy that I call “pair trading” or “trading pairs.”

What trading pairs means is that you buy one market while going short the other market in the same sector. Now Apple and RIMM are battling it out right now in the smart phone sector. It remains to be seen who is going to be triumphant in this battle but it would appear as though Apple may have the upper hand based on its very successful “APP” store.

I strongly suggest you watch my earlier video on this subject; here’s the link. http://broadcast.ino.com/education/apple_vs_rimm/ And then watch our latest video which I just produced.

Trading pairs is what many professionals do when they are unsure as to the direction of the general market but feel pretty comfortable in their analysis of the relationship between two stocks. I hope you find the video both informative and educational.

The video is free to watch and there is no need to register. Please click here to watch the video.

As stock markets are going super fast these days and we receive so much information (and we have so little time to process it!), we have decided to give a quick market review at the beginning of each week in order to outline the important information about the economy and the best stock pick for 2009.

Canadian Stock Market

We had a lot of important news last week on the Canadian stock market as the Canadian Banks were giving their result from their latest quarter. We personally think that Canadian Banks could be part of the best performing stocks in 2009. Actually, most Canadian Bank stocks rose by 40% since December 2008. Is it too late to buy them? Well their dividend yield is still around 4 to 5% depending on the stock. This lead us to think, since they are well capitalized, they can keep paying their dividend and that their stock should go up again in order to reach a 3% dividend yield (which would be normal to the Canadian Bank industry).

US Stock Market

The sky is cloudy down south as GM is declaring bankruptcy and hope to do damage control and create a new entity within the next 3 months. The US dollar keeps losing strength in front of other currencies (such as the Canadian Dollar and the Euro) even though the rumors about the US government losing its AAA credit rating. Moody’s and Standard & Poor’s reiterate the perfect credit rating of the US last week. Nonetheless, BRIC countries (Brasil, Russia, India, China) keep selling their US currency in order to trade it for gold (price is rising near 1,000$ / oz).

The good news for Americans is that the consumer confidence index rose and we are expecting citizens to start spending a little bit more. We all hope that the negative effect on employment due to GM and Chrysler won’t affect them too much!

The party is still on with resources

I think of the price of copper which reached a peak last week and the oil barrel that keeps surging out of the dead (was $35) to near $70. Even though it is mostly speculation, the barrel keeps rising and the gas pump still ask for more. Summer is going to be rough on American as their dollar keeps going down and gas keeps increasing. That doesn’t left much cheap destination for vacation!

In our new video, I delve into the depths of the British Pound, and take you step-by-step into my thought process and why we’re looking at this market right now.

Whether you’re a newbie or experienced trader, I believe you will benefit from this video. In the video we give you specific levels that I’m watching, and target levels that we expect the British Pound could achieve if it breaks over one key psychological level.

As always this video is with our compliments and there is no need to register to watch.

Watch this video now!

Enjoy and feel free to comment on our blog.

Enjoy the video.