I've noticed a disturbing commonality among unsuccessful traders. Mainly, that losses are 'no big deal' and 'part of the game'. While taking small losses can be a valid part of a well oiled, robust and highly successful professional trading system... the idea that losses are 'acceptable' seems to be distorted in the minds of unsuccessful traders. New traders are conditioned almost from day one by books and by peers to view losses as just part of the game. While this may technically be true, the message is misinterpreted by new (and many old) traders to be... that losses are much less of a big deal than they actually are. The net result is that traders do not make every conceivable effort to AVOID losses in the first place. Traders typically skip this step entirely and jump right into the next step which is 'limiting' losses. New traders are not taught that losses are the LAST thing you want and that you should move heaven and earth to develop a trading system that is not constantly pummeled by losses, if at all possible. If it's not possible to avoid losses, fine. Of course. Deal with it. Factor it in. But if you take the attitude from day one that losses are horrific (rather than 'just part of the game') and should be avoided at every turn if possible... you will be more keen, more cautious, in developing a system that makes avoiding losses in the first place a priority. Ultimately what happens to new traders is that they grow accustomed to losses. Many even cherish their big losses and trot them out in conversations as proof that they 'have what it takes' and have 'paid their dues' and are now ready to make some real money. But when the next horrific loss comes it's like the bucket of ice cold water that is dumped on their heads does not shock them. It actually excites and refreshes them. They rage at God, then immediately shake it off and write another Visa check to refund their accounts. Their attitude about losses is unhealthy and self defeating. Losses are horrible. Take them ONLY if you must. Even if losses are 'part of the game' don't look at them that way. A trader should do everything in his power to rig up a trading system that avoids losses whenever possible and keeps any losses that do sneak through to the bare minimum. Thoughts and comments welcome.
Yes. Yes. A hundred times Yes. I wrote this many years ago and just stumbled across it recently. I humbly submit it to the dialog: And here a note about "aggression". You've read that such and such is for "aggressive traders (investors) only", or that such and such a tactic or strategy or approach is "aggressive". What the hell does that mean? Usually you're told that if you're going to be "aggressive", you should risk only money that you can afford to lose. This ranks among the dumbest advice you'll ever receive. There is no such thing as "money you can afford to lose". To entertain the notion that there is such a thing diminishes the respect that you damn well better have for every dime if you're going to become involved in the stock market (if you have no respect for money, go to Vegas). "Aggressive" ought to mean that you are at least experienced, profitable, disciplined, quick, well-prepared, and that you manage your trades exceptionally well (and if daytrading, a great broker, an exceptionally dependable trading platform, and a rock-solid internet connection). "Aggressive" is not a test of manhood. It is not swimming in raw sewage or eating slugs or shoving scorpions down your pants. "Aggressive" requires an extraordinary amount of work. It is not ignorant bravado. If you don't want to put in the hours, stick to the safer course. Odds are that you'll end up with more money in the bank anyway.
I'd probably fall into this category of an unsuccessful trader, but there is nothing I hate more than losses. If I have given an opposite impression on ET in any way, my apologies because that is not the case. The "you're playing with house money" after taking a partial winner might be one of the dumbest things I've ever heard. You are never playing with house money! It is your money!
The halls of ET are littered with the posts of traders trying to develop a system that makes avoiding losses a priority. I personally tried to help several traders who made avoiding losses a priority. These poor souls would position themselves at perfectly reasonable price levels and then sabotage every trade by moving stops around in an attempt to avoid losses. I agree that horrific losses are horrific, but trying to develop a trading system that prioritizes avoiding losses is about as effective as trying to launch a business that makes avoiding normal operating costs and expenses a priority. If you poll every consistently profitable trader who ever posted here, I doubt you'll find a single one who made avoiding losses a priority.
I guess I should clarify - if the deck gets reshuffled and I lose, I can't do much about that. I was talking about the unforced errors that I cause. I'll always hate those.
Losses in this business should be treated as expenses as in any other business. Those who are petrified by losses in trading, should open a Subway. A successful trader experiences losses, and manages them like any other business expense. If you trade and have no drawdown, I would like to meet you. No, blow you. But you better be able to prove it...
A loss is a message sent by the market. Unfortunately, the unprepared trader is so focused on himself and his loss and the self-recrimination to which this generally leads that he isn't even at home to receive the message, much less read it. So while he's wallowing, he completely misses the trade he would have taken had he been paying attention to the message that the market sent him by triggering that loss. And that makes two losses. And so it goes. The trader's attention should be directed solely toward the market and what it's doing, not to what it's doing TO him. All references to winners and losers and profits and losses and percentages of this and that should be turned off. Any reminder of a previous win or loss, whether provided by the platform or by one's own memory should be avoided entirely. Otherwise one's trading session will be haunted by regrets and/or self-congratulation, both of which are equally damaging to how well one manages one's day. A loss should not be a "horror", even if it is a loss that one caused himself. If it is a loss that one caused himself, it is most likely the result of not following his trading plan. If he followed his trading plan and incurred a loss anyway, then the trading plan may need to be re-examined. Of course, if he has no trading plan . . .