3 Steps to Stop Losing Money in Trading

To start trading a trader needs to fund an account with some of his or her own money. That is called the initial investment. But even before you consider this step, bear in mind these 3 essential points.

The 3 crucial steps are namely 1) what to do if your funds fall below a certain amount, 2) how you will manage risks and 3) is this initial investment sufficient.

The sad fact is that close to 95% of new traders don't know about these 3 steps at all and most of these new traders end up losing money.

Here are 3 tips to help you keep afloat and solvent regardless of how bad the market is.

1. Keep a separate account

Even before you start trading, you would have in hand a certain amount of cash, the amount would of course vary from trader to trader. What you can do is to keep half of the amount into a separate bank account

What happens is that you have just created a reserve account. This is held in reserve in case your initial account gets wiped out. The other reason for building such an account is that we have guard against our emotions. If you use up all of your account then should there be a need to transfer any cash over to your trading account it would take some time. During this time you get to cool off. There should never exist a need for you to touch your reserve account. If you lose the initial account. Stop and consider what went wrong before starting again. Take the time and effort to improve yourself.

2. Money management

The difference between a profitable trader and a loser trader is money management and psychology. There is now other way to be profitable other than to focus on money management and psychology.

A good guide to follow for money management is to use not more than 1% to 5% of your whole initial investment. How that works out is that if you happen to use 1% of your account, then you get to make 100 losing trades before you need to refund your account. Consequently if you decide to use 5% then the figure goes down to 20 losing trades. Depending on individual risk tolerance level you decide, but base that against the risk and returns of each trade as well.

3. Contingency Plans

This is your exit strategy. Let's face the reality, you will lose money, this is a fact. Unless you have a mentor to help guide you through the difficult starting stages of trading it is most likely that you will lose your first account.

That is why in the beginning you will need to split your initial investment into half. After you have traded and failed, then your next account will be a lot more profitable. You can read a lot of books, go for all the courses, but nothing beats the real experience of trading. After you have had experience in trading you will know how to handle your losses better. So set up a safety net, call it insurance if you like, just do it and you will thank me later.

The above 3 steps will help you to stop losing money in trading. Once you have stopped the out flow of cash, every trade you do brings in more profits to you.