How often do you hear about traders or hedge funds going bust? How often do you hear about hedge funds or traders making a return of 100% or more? You read headlines like these every week… “XYZ Hedge Fund Trader ruins firm with bad gold market bets” or “XYZ Hedge Fund Trader makes a lot of money betting on the oil market going down.”
Today I’m going to talk about something that most people who have worked in hedge funds on Wall Street would agree with. “Your next trade could make you rich or bankrupt you.”
In recent times, strong trends have been seen in most of the major Forex pairs. During these kinds of trends, one big trade can make or break your whole month, year, or even decade in the market. It can make up for any recent losses and also give you a very nice profit. On the other hand, one bad trade or trading mistake can really hurt or even wipe out your trading account. So, a single trade can make or break your trading account.
Since the human mind isn’t perfect, it’s easy to get too emotional when trading on the stock market. Any trader is literally “one bad decision” away from losing their entire trading account, or “one great decision” away from doubling, tripling, or even quadrupling their account. You can only avoid getting too burned by trade if you prepare, plan, and carry it out well. Ironically, you need the same things—proper preparation, planning, and execution—to set yourself up for big, steady wins in the market over the long term.
Let’s talk about some ways you can make sure that no single trade “breaks” your trading account and still put yourself in a position to make big money on the market.
Don’t let a single trade “break” you.
If you’ve ever played a competitive tennis match with someone who was about as good as you, you probably already know how bad unforced errors can be for your game. In fact, if you and your opponent are pretty close to being on the same level, it’s usually unintentional mistakes that will cause you to lose a game like a tennis. In other words, you are your own worst enemy. This is probably even more frustrating than losing because your opponent is better than you. Beating yourself up is the worst thing you can do. Feeling. Ever.
As you may already know, one bad trade can hurt your trading account a lot or even wipe it out completely. Possibly more than any other job or sport in the world, trading is the best place for people to make mistakes and hurt themselves without trying to. After all, you are the only one to blame if you lose money on a trade you knew was “stupid” and you shouldn’t have done it. Putting yourself in a position where you make unforced trading mistakes and lose money because of them can start a toxic cycle of losses and emotional trading that can make you so vulnerable that one bad trade can wipe you out.
So, the best way to avoid going “broke” from a bad loss or a trade that wasn’t handled well is to avoid all the mistakes that come up naturally when trading. If you don’t let unforced trading mistakes put you in a bad trading frame of mind, you will greatly reduce and probably get rid of the chance that a single loss will hurt you a lot.
So, here are some of the mistakes you should try to avoid:
- When you know, you have no reason to trade. It is very risky to trade just because you “feel like it.” It’s like a gambler who can’t leave the casino because he “feels” the next big win is right around the corner. Don’t be that guy who stays up late watching TV while his wife and kids sleep. When there’s nothing to trade, go to bed and stay away from the markets. Tomorrow, the market will be there.
- Giving back money made. This one is big. When you make a good trade and win, you might feel euphoric. This seems like a good feeling. But for a trader, it can be a sneaky emotion that can do a lot of damage “under the radar.” After a big win, traders tend to get overconfident and wide-eyed. They feel “special” and think they can better see “opportunities” in the market. But what’s really happening is that the money they just made has made them think the market is less risky. For the time being, trading suddenly seems “easy,” which makes them less aware of the risks. After they take their winnings, they make another trade right away or soon after. This next trade is usually a loser because it was made out of pure emotion (euphoria) instead of logic and planning. Traders give back the money they would have kept if they hadn’t done this. So, a random mistake can create a chain reaction of emotional trading mistakes that can quickly lead to that one big losing trade that wipes out your account.
- Putting the risk too high. This one is obvious, but it happens a lot, and traders often make this mistake after a trade that went well. As I just said, the excitement of making a good trade can be very risky. It makes us want to jump back into the market for no reason, and we usually want to take on more risk than we can afford to lose. It’s pretty clear how that sets you up for a big “break you” trade, so I won’t explain it. But let’s just say that if you raise your risk beyond what you’re comfortable with, you’re setting yourself up for disaster when your next losing trade comes.
So, the best way to make sure you don’t get “broken” by a single trade is to avoid all the unforced trading mistakes that most traders make. If you do that, you won’t get into that bad trading mindset where you always feel like you “need to trade.”
You can “make it” with one big deal.
We just talked about some mistakes that can lead to a bad way of thinking about trading, which can put you in a position where one trade can wipe out your trading account. Now, let’s switch gears and talk about how to set yourself up so that one big winner can make up for a month or more of losses in the market.
Simply put, if you manage a trade well and follow an established trend, you can make enough money from it to pay for a year or more.
How is this even possible? It’s easy…
If you’ve been following me for a while, you know that I use the “sniper trading method,” in which I only make a few trades per month. Even though I don’t trade very often—maybe 2–8 times a month—the trades I do make are well thought out and have a high chance of success.
Once you’ve learned how to trade, know what you’re doing, and have the right mindset for trading, all you have to do is wait. Waiting for that “easy prey” of trade to stumble in front of you so that you can take it. At that point, everything comes down to how it’s done.
A trade in a trending market that you scale into as it moves in your favor is an example of a big trade that can make your whole trading month or even year. If you want to learn more about pyramiding or scaling into trades to make more money, check out this article. Even if you only pyramid two or three positions, you can make a lot of money if the trend is strong and you let the trade run its course. Even though these market conditions and trades won’t happen very often, that’s the point: they don’t have to.
You need to plan and prepare if you want to make money on these once-a-month or maybe even once-a-quarter trades.
You need to know what you want before you go to the market. This can be done by learning and mastering a good trading strategy, like the price action strategy you can learn in my trading course. Then you’ll need a plan of action (also in my course). Your trading plan is where you put everything you’ve learned about the market into a short but complete guide that will help you remember how and what you should be doing.
After that, you wait for that highly confluent (easy prey) trade setup to happen, and when it does, you’ll be ready and won’t hesitate. You will act quickly and follow your trading plan to the letter.
The great thing about trading in this well-thought-out way is that it helps you build and keep good trading habits. Once you start making money from trading because you planned and prepared well, it will become a habit that will be harder and harder to break. So, you move farther away from the toxic way of thinking that can cause one trade to wipe you out and closer to the right way of thinking about trading, where you’re literally trading “in the zone” and setting yourself up to make a huge profit from just one trade.
In the end, it all comes back to this central point: One trade or market event can decide your fate for that month, quarter, or even year. So, not only do we need to be aware of this, but we also need to plan so that we don’t get into a state of mind where one bad trade can wipe out our account. Instead, we need to consistently prepare, plan, and act in a disciplined way so that our minds are ready for that big winner that makes a huge profit. Just remember that the first time you hit a big win, you shouldn’t give that money back to the market just for fun.
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- Warren Buffett
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