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The Surprising Cost of Trading Losses

In light of the recent major drop in crypto markets, it’s important to have perspective on the value of loss protection. We all seek large, profitable trades, but having a system that minimizes losses is surprisingly important. Exiting the market before a major downturn is surprisingly beneficial.

There will likely be some excellent crypto buying opportunities in the near future, but hopefully this post gives you perspective on keeping your losses in check as these opportunities are tested.

Also Read: How to Short Bitcoin for Crypto Traders

The True Math of a Trading Loss

Solid knowledge of math is a something active traders¬†should have. The true cost of a loss is just such one point. Here’s a great illustration of the cost to recover from losses:

Recovering From Trade Losses
Source: Investor Business Daily

Why is this?

Equal percentage gains and percentage losses are not, in fact, equal. This may sound confusing, but again consider an investor with $100,000. If the investor loses 25%, the portfolio value is only $75,000. A 33% gain ($25,000/$75,000) is then needed to regain the original 25% loss. (source: See It Market)

Conclusion

Regardless of what you trade, ensure your system helps protect you from large losses.

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