Sunday, 3 July 2016

Losses Are A Part Of Trading

Can you name a great trader who has never had a losing trade? Losses are a part of trading. I remember hearing Van Tharp say that a loss is to trading what breathing out is to the breathing cycle.
It is not unusual for new traders to have difficulties in taking losses. After all, losing is not something to be desired in most areas of life, so why in trading? We are generally conditioned culturally to aim for very high percentage success rates; in exams, high percentage scores are required to achieve the best grades. But in trading you could be very profitable with a 40% winning percentage; indeed, you could even be amongst the top earning traders. There are not many exams where you can get top marks with 40%.

Learning to Take a Loss
Good trading is not about being right, it is about trading right. If you want to be successful, you need to think of the long run, and ignore the outcome of individual trades.” – Curtis Faith, Way of the Turtle

There are lots of different strategies and approaches that you can use to help you to take and deal with losses more effectively. Ultimately your beliefs and attitudes  around  what  a  loss  means  will  have  the  biggest  impact  to  you.  I remember working with one trader who saw a loss as a failure, a setback and a waste, and combined with his perfectionist tendencies this made taking any kind of loss a real challenge, and emotionally quite painful and difficult. But  once  he  had  challenged  those  old  beliefs  and  made  the  decision  to  see losses as being a part of the trading experience: – something to learn from, - and had made the distinction between a losing trade and a bad trade, then his ability to take losses, and to deal with them, dramatically improved.

“Resilience is essential; again it isn’t so much how well you deal with success in trading it is how you deal with problems (and there will be a lot of them). When I trade it isn’t the financial side of the loss I find difficult, it is when the trade proves to be right and you have paid up or down which is the biggest frustration. I would advise, as I am starting to learn now, you are better just to forget about it and move on – there is always another day.” 

“Dealing with losses can be hard. Try to analyse them in an objective way. Working out what went wrong will help you to feel that you have the power to prevent it next time. This will give you the belief that you have come through a better trader, and this will help greatly with the healing process.”

“To always remember to step back and look at the big picture, where the decisions of a current trading day, or even a trading month, are merely a fragment of an overall plan of action. In that way, the trader’s bankroll can be managed effectively, the psychological effect of losses can be overcome more easily, and the trader would find less need to gamble for the one big trade, when he/she is aware of the positive effect of consistent accumulation.”

“I think one of my strengths is that I view anything that has happened up to this point to be history. I really don’t care about the mistakes I made three seconds ago in the market. What I care about is what I am going to do from the next moment on.”

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