Don't Change Time Frames to Stay in a Losing Trade

11/05/2008 10:18 am EST

Focus: STRATEGIES

Too many times, I hear about new traders opening a trade using the five-minute chart (not my favorite approach), and when the market moves against them, they move to the 15-minute chart to justify staying in a little longer, hoping that the market will turn around. Then, if the market continues to move against them, they move out to the hourly chart to look for a reason to stay in the trade.

As the market continues to move against them, they shift to the daily chart to hope to find a reason to stay in the trade. The next step is to get a margin call because they have no funds left to maintain their position. Of course, the main issue here is that they were looking for a way to stay in a losing trade rather than closing it out at a small loss. Taking a loss does not mean that you do not know what you are doing.

Too many new traders think that losing a trade means that they are losers or that they aren't smart enough to trade. Nothing could be further from the truth though. Professional traders understand that if they trade, they will have losing trades. That is really the only guarantee in the field of speculation. How you handle those losing trades has as much to do with your success as a trader as any other factor.

You don't have to like losing, but you must accept the fact that not all trades can be winning trades. You have to keep those losing trades small enough to be able to make up for them with your winning trades. Switching time frames to justify staying in a trade is not how you keep your losses small. Identify your exit point before you get into the trade and stick to it. Judge yourself from month to month, rather than on every pip move in the market.

Be consistent in your approach, and stay in one time frame from the beginning of the trade to the end of the trade.

By John Rivera of DailyFX.com

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