Accepting that losing trades are an occupational hazard and an unavoidable issue in the industry we work in, is one of the most difficult elements (emotionally) of retail trading to overcome. We may spend many of our early months searching for an edge that limits our losses to a minimum, whilst maximizing our profit potential, on each and every trade. We very quickly develop an abject fear and hatred were losing trades are concerned, so much so that avoiding losses can become an all-consuming activity. We can then become so risk adverse that it begins to affect every other aspect of our trading, crippling anxiety can creep in, whilst we may even begin to doubt our performance to such an extent, that we remain paralyzed when the opportunity occurs to take a manual trade.
For experienced and successful traders, the memories of such crippling anxiety might recede, but in some ways you never forget the experience, you remain humbled. It’s a part of your personal trading history that is often worth referencing to remind yourself of where your journey started and the trials and errors you’ve endured, to finally arrive at a destination where you’re eventually considered to be successful.
Personal Traits That Lead to Successful Trading
We very quickly (have to) learn that there is no 100% successful method to trade the market, that there are sacrifices involving our money that are inevitable. This is in fact part of the reason why we abhor trading losses and in many ways is a good indication of the respect and approach we should adopt towards money management and the market. Without a doubt it’s the forensic, exact, judicious individuals who become the best traders, not those who have a reckless attitude towards an occupation that requires such discipline and dedication. Therefore, if we’re displaying a reluctance to lose cash, it’s an extremely healthy issue we can actually work with, to improve our results, it’s far more difficult to work with (or on) a reckless psyche.
In order to begin to accept our losses we can use a time proven method; we remind ourselves that the loss we’ve just incurred means that we’re now closer to the winning trade, that is inevitable based on the distribution of losses and wins (set out in the win loss ratio aspect), of our trading plan and overall method.
Much of our research into trading has led us to the knowledge point whereby we now instinctively know that there are (at times) a fairly random distribution between winners and losers. However, as we’ve personally evolved as traders, we’ve also learned that the distribution may not be as random as we first considered, as our wins are concentrated at areas where price action is most prevalent. We quickly establish that, if we control our risk, then the losses, whilst not being predictable, are far more acceptable and in some ways predictable. And in one crucial aspect; with the correct use of hard stops, we know exactly how much we’ll lose on our losing trades.
This fixed attitude towards our losses can help us rewire and then hardware our personal trading mental circuitry into fully accepting losses. In many ways a light goes on; we realize that it’s not necessarily the losses that’s causing our fears, it’s the uncertainty of the losses in terms of their random and cumulative cost that makes us fear losses. Therefore, if we limit the losses and know the full extent of the damage to our account before we trade, our fears will organically recede.