How to Profit from Losing Trades

It would sound almost too good to be true right? Well, it's good, it's true and I'm going to explain to you how you can profit from losing trades in this article.

We didn't gamble, or do anything complicated or far-fetched. In fact, we kept things seriously simple...and so can you.

70% Were Losses But We Still Profit From These Losing Trades!

If we keep the risk low for every trade we place but target set-ups with only high reward, we really can still be profitable even if we have more losses than wins. In this respect, we can profit from the overall trade sample (of both losses and wins).

Suppose we traded ten trade set-ups which were based on our trading strategy. As responsible, experienced traders, we  risk managed our trades, risking 1% of our trading account's value for each set-up traded. However, we only traded set-ups with positive reward, with a minimum of a 3:1 reward/risk profile.

However, we had a terrible run! Out of our ten trades, we had seven losses and only three winners, which hit our profit target. But we still managed to profit from losing trades! But when I say "profit from losing trades," I am referring the overall sample of ten trades.

Profit from Losing Trades by Selecting Trades with High Profit Potential

As we risked no more than 1% of our trading account per trade, we lost 7% as a result of our seven losing trades. But as our three winning trades that hit target made 3% each, we were able to round prevail with an overall gain of 2%.

Profit from losing trades - in focus:

This scenario may have been an extraordinary unfortunate run of loses, I wanted to demonstrate that if we can still make money when times are bad then the good times will well and truly reward us.

Embrace Opportunity Flow

Yes, most strategies yield trade set-ups some of the time, others most of the time...but no single trading strategy wins all the time. A trader's long-term success with a strategy will be largely dependent on their ability to keep trading the strategy even in the face of adversity.

Many amateur traders simply fall into the fear trap: of enduring a few losses and being too scared to trade the next set-up - fearful of losing yet more money...but to their horror, they later discover that the trade set-up they missed actually went on to be the trade of the month! Sound familiar? As professional traders, we need to accept that sustaining a losing trade is part of the battle. After all, all trading strategies have periods of gain and drawdown and if, like me, you're an optimist, you can simply regard a loss as one step closer to a win...or even a string of wins!

Many traders make the mistake of accepting a drawdown or a series of losses as being down to "bad lack" of understanding or simply choosing a bad strategy - yet remain blissfully unaware that mange strategies have a drawdown phases as well as periods of gain. It also helps if you understand some of the basic trading patterns such as candlesticks. 

We can never tell when a strategy goes into a period of drawdown or gain. But we can prepare for these times by simply selecting trades which have a high profit potential so that the we can at worst lose a little, or, at best, win big.

You can find out exactly how you can establish a trade's reward potential in the article: What is Risk Management