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[Joe Ross]

Trading losses

Hey Joe! Losses are a major problem for me. I know I’m supposed to “learn to love them.” How do you deal with these discouraging events?

After a series of highly successful trades, a trader should not become discouraged by normal successive losses or an equity draw-down, but learn to expect them. Notice I didn’t say, “learn to love them!”

Alright let’s say you just took a sizable hit in the market. You feel guilty and angry. You wish it didn't happen. You would like it to go away. You tell yourself, “This is part of the price you pay to become a successful trader.”

Is this right thinking? Is this trading is all about? Do you really need to go into a trade expecting to lose?

Don’t you believe it! Though you see such statements set forth as truth, believing them is not going to help you to become a successful trader.

If you think to yourself, I just lost a lot of money and dwell on that thought you will soon be in trouble. If you think, “I can't just write it off,” then train yourself to think of it as a minor setback and move on. I know that’s difficult, but that's what you have to do. As a trader, you have to think of the long term. You have to believe that if you work smart enough, and make the good trades under the right market conditions, you'll come out ahead. However, there is no way that that kind of thinking comes easy. It takes an enormous amount of discipline and self-control to handle losses in a positive way. Why? Because losses hurt—they hurt no matter how long you’ve been trading.

If you have trouble taking a loss, you are not alone. All traders suffer losses. As a trader, the losses you take may be a fact of life, but that doesn't make them easy to handle, and you certainly don’t have to learn to love them.

As a trader you should control the amount of losses by keeping them small, and ride through the draw-down until another sequence of winning trades begins. Nevertheless, you may find yourself feeling guilty over taking a loss. Why do we have this feeling of guilt about losses? A part of that guilt feeling stems from a strong human urge to protect oneself. So when you lose money, even as a professional, active trader, it hurts when you think of the things for which you might have used the money you lost. You were probably taught to think that way. The social and cultural values of protecting yourself were programmed into you at an early age. When you lose money on a trade, you feel guilty and maybe even a little panicky. It's quite natural and understandable, but who says that traders are natural or even that they act in an understandable way? As an active professional trader, you have to change your thinking about losses. You have to resist your natural inclinations and learn that losses are a part of every business. Retail stores take losses from breakage, shoplifting and employee theft. Insurance companies take losses from false claims. Tobacco companies are sued. Chemical companies make bad batches and have to throw them away. Farmers lose crops. Ranchers lose livestock. I cannot think of a business that does not experience losses.

So what do you do about the way you were programmed from childhood? You must confront your feelings and deal with them. Recognize that you are experiencing guilt. Understand why you are having those feelings. For each of us the underlying reason may differ in kind and intensity. It helps to admit the fact that there may be adverse consequences of taking risk with your hard earned money, and keep in mind that feelings of guilt associated with the loss of money that you cannot afford to lose is even worse. No one has any business trading with money they cannot afford to lose. When you are trading with money that has been set aside specifically for trading, and you and your family (if you have one) all agree that this is money you can dispense with in the event of a loss it takes away a lot of the pressure of losing. Actively avoiding losses through intelligent risk management also helps to relieve stress and to lower the probability of a catastrophic loss. When you know that you've done everything you can to minimize risk and you feel certain that you can survive a major hit on your account scenario, you'll be able to more easily handle losses. Effective risk, money, and trade management go a long way towards building your confidence and relieving the stress from trade losses.

Once you have taken care of risk, money, and trade management issues, you must also ensure that you have sufficient trading capital. One of the most certain ways to end up a failure in the markets is to go into them undercapitalized. The largest percentage of business failures of all kinds are from undercapitalization. The U.S. Small Business Association states that only one in fifteen hundred small businesses startups is successful at the end of five years. The majority of those failures come from businesses that are undercapitalized. It is not different for the business of trading. You have as much chance of succeeding in this business starting out with a $5,000 account as you do of winning the State Lottery.” Regardless of what level you start out with you must cut trading losses immediately. The faster your trading takes a loss, the higher the probability you will eventually be profitable. By learning to take losses quickly you will succeed sooner.

Trading losses are a business expense. In one sense, trading losses are part of the cost of doing business. In another sense, the cost of losses is part of what you pay to learn the business of trading.

Losses are a fact of life in trading life. Losses are not easily accepted. But you certainly don’t have to learn to love them.

Joe Ross
Trading Educators Inc.

[midastrader]

How much you can afford to lose? The answer is, may be, the way to accept loss.

[Nooztrader]

Just think about losses as a price to pay (tuition) for learning how to trade. Losses also can mean something ur doing is wrong and u can ask ur self wut did i do to cause this and how i can not repeat the same mistake. If u view it from a learning pespective it is not so bad.

[0_PARADOX_0]

Well said Nooztrader, you have to have the Edison approach. He fails thousands of times before he nvented the light bulb. But in his view the faild experiments where just lessons he learnd.

So remember its not a loss its a lesson the market gave you. And also dont just say it have a look and actualy lean from it.

Happy trading.

[hoene003]

IMHO a loss has nothing to do with learning it is just part of trading if you are a newby or not, trading is based on probabilities. Most traders have not more than 60/70 procent winners that means you lose 30/40 procent, just accept it.

[Fxexcel]

Well said hoene, losses is just something we traders have to deal with. They are just part of the game and will be for ever with us.

Regards
Fxexcel
www.straightforex.com

[BullMarket]

Originally Posted by Joe Ross

You have as much chance of succeeding in this business starting out with a $5,000 account as you do of winning the State Lottery.

That’s debatable. You use what you have available to you. I have 300$ to devote to it and I can make it work. People have done more with less.

-Frank

[cornellj]

Originally Posted by 0_PARADOX_0

Well said Nooztrader, you have to have the Edison approach. He fails thousands of times before he nvented the light bulb. But in his view the faild experiments where just lessons he learnd.

So remember its not a loss its a lesson the market gave you. And also dont just say it have a look and actualy lean from it.

Happy trading.

Hallo O_Paradox,

I like your positive outlook. I apply a positive outlook as well. If a price goes against me(thousands have) it gives me the opportunity to buy the same item, I decided to buy in the first place, at a better price.

Happy trading