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most important trading skill
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(scroll down for screenshots of each day’s trades)

Trades: 5 / Winners: 3 / Losers: 2 / Break Even: 0

[wp_lightbox_anchor_text_display_external_page link=”https://www.forexistentialist.com/wp-content/uploads/2015/03/ROBOS_RESULTS_2015-2percentRisk.htm” width=”640″ height=”728″ class=”center_text” text=”2015 Progressive Results at 2% Risk“][wp_lightbox_anchor_text_display_external_page link=”https://www.forexistentialist.com/wp-content/uploads/2015/03/ROBOS_RESULTS_2015-5percentRisk.htm” width=”640″ height=”728″ class=”center_text” text=”2015 Progressive Results at 5% Risk“][wp_lightbox_anchor_text_display_external_page link=”https://www.forexistentialist.com/wp-content/uploads/charts/backtests/ROBOS_2013-2014.htm” width=”640″ height=”728″ class=”center_text” text=”Jan 2013 – Dec 2014 Results at 2% Risk (2% TP)“]


Question: What is absolutely the most important skill a new Forex trader must learn? Is it pattern recognition? Knowledge of interest rate fundamentals? An ability to read market sentiment and anticipate moves by major players?

No! No! No! Wrong! Wrong! Wrong!

Get a pen and write this down: The single most important skill a new trader must master if they are to eventually become successful is how to minimise losses!

Oh yeah. Right! As if you needed to be told that. Well, in my experience the ability to manage losses is the one ‘skill’ that is most sorely neglected. The majority of new traders focus on making money and not protecting what they already have.

“It is not whether you are right or wrong that is important, but how much money you make when you are right, and how much you lose when you are wrong.” – George Soros

Being a trader means you WILL lose some of the time. Get used to it! It’s not the loss itself that matters, but the SIZE of the loss! In this game, preservation of capital is absolutely paramount if you want to make it to the Super League.

Being able to manage small losses allows a trader to build on their gains, rather than consistently returning hard-won profits to the market. It sounds so simple, yet most aspiring traders continue to take big hits until either their capital, or their will is destroyed. Learning to minimise your losses will maximise your chances of staying on the playing field long enough to learn and practice the other skills necessary to become a long term winner.

I’m sure you’ve heard it quoted many times before; “trading is a business”. It’s true, and as such, your business requires a business plan – one that makes allowances for profit and loss. In fact, the words ‘profit’ and ‘loss’ should really be replaced by ‘income’ and ‘expense’. If you manage your trading as you would a true business venture, ‘profit’ is what you extract at the end of year if your income is greater than your expenses. ‘A loss on the other hand is what you’re left with if you haven’t managed your expenses well.

So how do we learn and develop this skill? The same way we learn any other skill – PRACTICE, DISCIPLINE and PERSEVERANCE! Write down a trading plan and trade it. Firstly in ‘sim’, and then ‘live’, but with only a small position size. I don’t care whether you have a hundred, a thousand, or a million shekels under the bed, you need to start at the start. By doing so you will learn to be a good loser, and you need to become a good loser to become a good winner.

By learning to take a small hit and roll with the punches, you’ll be better able to see the openings to make a knockout of your own. Trust me on this. Trade a minimal position size with a sensible stop loss, and you’ll become immune to the emotional burden that the majority of retail traders bear. Fear of losing!

The above post is an adaption of an excerpt from my 2008 ebook “Pointbreak Trader”, dealing with trading of index futures.

Check out last week’s trades below…

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