In this article, you will learn how to identify a failed trade and the importance of booking losses early. In CoinPanel we want you to learn certain techniques to maximize your profits from trading and with the help of this article you can get some insights on how to achieve that.
Let’s dig into it right away!
A trade goes through various phases in a trade. When a trader takes a trade, the major purpose is to earn profits. Entry is the first step to taking a trade. Levels are decided by a trader seeing the trend by historical data. A trend usually gives a 20% move in the desired direction before consolidating in a zone most of the time. A trend reversal or a sharp price change in the cryptocurrency requires close observation of the price action. Exiting a trade with profits is often the toughest part for a trader as he wants to earn more and more, but realizing the point where a trade starts to reverse is important to identify as this will make the profits less.
Another situation is when the trade makes a move in the desired trend but it reverses and it’s important to realize that the trade has failed and it is time to exit.
Now, what can the signs be a trade failure:
1) After a stock breaks out from its resistance or an all-time high a person expects a good upside but if the cryptocurrency tends to get low volumes and moves sideward after breaking a demand zone it might mean that the move is going to fail.
2) Fake breakouts are also a major cause of failed trades. A novice trader entering the market initially tends to get caught in a fake breakout when the trader sees the trend in his favour but it’s a trap and the losses follow.
3) Incorrect levels marked by the trader may result in wrong entry levels, this can lead to the cryptocurrency not giving the desired returns and anticipated move.
When something like this goes down a trader should know when to exit the trade to minimize losses or protect the profit. Stop loss for an intraday or short-term trader is not a big issue if he/she is disciplined. Since they are disciplined, the losses will be up to a certain level.
Strict stop loss in case of unsure trades should be kept with a proper reading of chart patterns as decided by you before taking the trade. In unfavourable markets like the current scenario of extreme volatility traders should be extra cautious. The probability of trade failures increases in such conditions as market sentiments are poor and are not very favourable.
As can be seen in the above chart the trader might enter when the support level is broken as a short position in the cryptocurrency, but it seems like a fake breakout where the price tried to escape the demand zone but the buyers came back in the market and pushed it above the support line. This can be an indication to exit and the trader should exit the trade when the price moves back above the previous day’s closing.
The Denial Phase
The denial phase is arguably the toughest aspect of a failed trade that a trader must overcome. In the denial phase, the trader would not accept the fact that the trade is not performing well and can plummet further in price. This phase is the reason why many novice traders lose huge amounts in trades. It is ok to book losses at times when the trade is just not moving in the path you had anticipated. Even the best traders have an accuracy rate of 70-75%, and they are the best traders in the game. This is why if you are able to achieve an accuracy of 60%-70%, you are on the right track! Always remember to book losses before they start blocking your capital from taking future trades.
We hope this reading helped you with your failed losses and with how to manage those trades! This week we also welcomed our new chart Analyst ‘Kyledoops’ from CryptoBanter Family as one of our chart analysts. He has over 6 years of experience in the cryptocurrency space.
His charts are live on CoinPanel which you can access through your market section!
Make sure to use the links to his social media accounts for more Crypto-related information.