The 5 Outcomes Of a Trade | How not to blow your account
Trading is a business based totally on probabilities. Whether you’re trading FOREX, Stocks, Commodities, Cryptocurrencies, Precious metals e.t.c. Successful trading is not about how much you win alone but how much you’re able to keep as well.
Successful traders know there are 5 outcomes that can come out of a trading position. When managed well these outcomes can lead to great success. However, when manage badly can cause disaster to a trader’s account.
Below I’ll highlight and discuss the possible 5 outcomes of a trade and how you can manage them.
1. Small Profit
This is when a position ends in a very small profit, for trend traders, this is usually the case. However, in this situation, there is no loss. Take a case where you place a trade risking $1 and you end up with a $0.4 profit at the close of the trade when you were actually anticipating a better return from that position. It’s very normal in this business to experience this, especially during a low momentum market.
2. Small Loss
This is when you lose a small amount at the close of your position. This is part of normal and good trading. In fact, you should cut your losses early. Taking small losses or cutting your losses early will help you stay in this business long term. See these losses as the price you pay to find out if your trading edge will place out on a particular position. Eg. If your maximum risk per trade is 1% then you should not lose more than that on any trade under normal circumstances.
3. Breakeven
This is a position where you really didn’t make or lose any money. They’ll come too, they are not necessarily bad trades. These types of trades may just mean you should find re-entry to the position or may just be a quick exit without a loss or profit. Take them as part of normal trading as in fact they are, profitable traders see them as just another trade.
4. Big Profit
This is when a position ends in a very big profit. This type of trade does not come too often but when they do come they are the trades that move your general account return for the period to the next level. As a trader, these are the type of trades you should look forward to. These types of trades can give you returns as much as above 10X your initial trade risk. However, the thing is they don’t come very often but you must be prepared to take advantage of them when they do come, even if you have to take many small profits, small losses, and breakeven trades.
5. Big Loss
This is when a position ends up closing at a very big loss. This type of trade should never happen on your trading account as a pro-trader. This is the type of trade that can blow your trading account. It’s why you should know how to cut your losses quickly and take a small loss. If you allow a big loss on your account it can demoralize you and affect your trading as you may soon find yourself trying to “get back to where you were”, this then leads to more and more losses, and boom you’ve blown your trading account. So, please avoid the big loss, it is a big sin in the trading world.
So, I’m glad I’ve been able to share with you the possible outcomes of a trade and how you can manage them properly. A simple knowledge like this can suddenly turn your trading account to become profitable.
I wish you all the best even as we grow to learn more advanced concepts.
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