Can You Avoid Losing Trades? Risk and Probability
Updated: Oct 29
Can You Avoid Losing Trades? Risk and Probability is ultimately a question of capital preservation and decision quality. A practical approach defines risk before entry, sizes positions consistently and accepts that losses cannot be eliminated.
Avoid Losing Trades: In This Guide
Key lessons and practical rules
The original Financial Wisdom guide and media
Evidence, limitations and risk controls
Frequently asked questions
Related guides and authoritative sources
Key Takeaways
Losses are unavoidable; uncontrolled losses are not.
Position size should follow the distance to a logical invalidation level.
Gaps and liquidity can produce execution beyond a planned stop.
Portfolio exposure matters as much as risk on one trade.
Original Financial Wisdom Guide
Background and Core Ideas
And knowing how to manage them.
What to do when you are getting stopped too often.
Trading doesn’t always go well. There are times when your trades check all boxes, but despite that, you keep running into your stop losses.
There are times when the losing streak is because of factors specific to your trading style, like selection criterion, your mood, or trading psychology amongst many other things.
To overcome the pressing issue, it’s important to figure out the reason for frequent stopping out and address the same in the next step.
Here are some prominent reasons traders encounter a losing streak:
Timing: Hostile Market
Sometimes markets are too nasty to trade. When there is a broad-based correction, there is high likelihood that most of your trades will gravitate towards the stop loss. Even the best of the set-ups and breakouts start looking ugly when markets take a turn.
As we approach the end of June 2022, many are seeing this exact scenario happen, but its important that you understand that the stops being hit are in all probability due to the market and not the specifics of the individual strategy.
Practical Checkpoint
Define the setup, entry and invalidation level before acting.
Compare the potential payoff with risk-reward planning.
Set the trade size using consistent position-sizing rules.
Rules and Practical Application
Can you imagine any long biased approach over the last 6 month in the US market doing well? no, the weight of the market would have taken many stops out of many solid strategies, it's important to recognise the macro element not just your specific set up.
A corrective market doesn’t necessarily mean that you won’t have potential trades. You might have a few trades, but they won’t always go too far before succumbing to some form of selling pressure. The trades are more likely to turn much before the price reaches your profit target, if you have one...
To overcome the 'losing streak' when the markets are hostile, you can stop trading categorically as a rule until the market improves. Or, If you don’t want to stop and still dribble, there are a few things you could do:
1) You could take your profits quickly and narrow your stop losses to change the dynamics of your trading until the market conditions improve.
OR (My approach)
2) Reduce position size and reduce position volume. Its not often I have more than a handful of positions with much equity exposure during a bear market. There are in fact many times where I will not hold a position for weeks on end.
When market conditions improve you can slowly increase position size and volume to take advantage of the eventual uptrend.
This is where you can really compound you returns.
Selection criteria: Trading too volatile stocks.
Evidence Check
Is the sample broad enough to include difficult markets?
Do the results include spreads, fees, slippage and failed signals?
Could hindsight, survivorship or selective examples explain the result?
Evidence and Examples
If you are getting stopped out more frequently than normal even when the market is good, there could be a problem with the specifics of the stocks you are trading.
If you are trading stocks that are too volatile or illiquid, you would be beating yourself again and again. Such stocks might have the probability of moving in your direction but not before knocking you out by hitting your stop loss.
To overcome this, you can put in a market cap size and volatility filter while screening. In the strategy I teach in Our group I use the NATR (Normalised Average True Range) for that reason .
Such a tactic will 'help' keep high volatile stocks off your list.
You can also put in a minimum volume filter, to filter stocks above a minimum desired volume, that will also help you get in and get out quickly while trading, without liquidity issues.
Incorrect entry: Without rationale.
For me, the stop loss position must be based on logical rationale.
You need to ask yourself; Why have I put the stop loss there? and your answer should have rationale.
When I say rationale, I refer to technical rationale, the structure of the market will give clues as to where the stop loss should be placed.
Risk and Limitations
This alone will help improve the odds (perhaps only marginally) of your stop being hit i.e. is it below a tested and validated support level?
Some use a set % but this is arbitrary, it often holds zero technical rationale.
Mood: Too greedy or too fearful.
If you have been through a losing streak, or you have an immediate need to make money, there is a high chance that your emotions will take over your trading.
When that happens, you will disregard your own rules and take worthless trades or trade too heavy just to make money. Trading heavy whilst getting stopped out regularly can be disasterous.
When you do that, your dollar losses or profits tend to decide your course of action rather than the trading plan that you laid out.
The best way to overcome this is to get your life in order before getting into trading. Trading is best done with a clear mind, or, Trading In The Zone. You would do great only when you objectively follow rules in trading.
The final word
Getting stopped too often can wreak havoc financially and emotionally if you are trading size, trading too often, in the wrong market condition or with the wrong stocks.
Summary of the Original Guide
In trading as in life, you have to take a couple of steps back to take the huge jump. Stopping and analyzing the reason for a losing streak are those backward steps and the ensuing trading profits will be your huge jump.
So, don’t beat yourself, understand and acknowledge the reasons, and focus on making things right. The results will follow.
But I end on this: You will never avoid being stopped out all the time, it is a part of trading and something you will need to come to terms with....... The best traders are right less than half the time.
My breakout strategy - 15 page rule book (PDF) is available for all members to use.
My Breakout Scanner - https://bit.ly/3ea6sl8
My Forum - https://www.financialwisdomTV.com/forum
My Strategy Blueprint - https://www.financialwisdomtv.com/plans-pricing
My Brokerage Account (Interactive Brokers) - https://bit.ly/3HVA1nc
Practical Limitations
Historical examples, book claims and indicator results are educational illustrations rather than forecasts. Outcomes depend on the market, timeframe, data, transaction costs, financing, taxes and execution assumptions. Test complete rules across varied conditions and define the maximum acceptable account risk before taking a position.
Put This Into Practice
These ideas become more useful when selection, entry, stop placement, position sizing and trade management form one repeatable process. The Financial Wisdom Trading Blueprint connects those decisions in a practical weekly framework.
Frequently Asked Questions
Can a stop guarantee the maximum loss?
No. Gaps, liquidity and order type can cause execution away from the intended trigger.
What is the first risk decision?
Determine where the idea is invalidated, then calculate a position size that keeps the account-level loss acceptable.
Further Reading
References and Further Reading
Educational information only. Trading and investing involve risk, including the possible loss of capital. Examples are illustrative, not guarantees of future performance, and nothing in this article is personalised financial advice.
About the Author
Written by Gareth, MBA
Gareth, founder of Financial Wisdom, has more than 30 years of personal trading experience. He competes in the United States Investing Championship, creates award-winning trading content and has been featured in Technical Analysis of Stocks & Commodities.
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