Dealing With Losses Most traders typically like to talk about their winners while avoiding any recollection of their losers. Smart traders will be aware of the patterns that occur with losing trades, so as not to hold losing trades any longer than necessary. Read below for tips on managing losses. Today I'd like to address the issue of trades that don't work out as positively as you originally envisioned. If you have been an investor for any length of time, you will have experienced a loss. While experiencing a loss is less than enjoyable, the real danger of a losing trade is the threat it poses to your confidence and your mental approach. That being said, here are some ground rules to keep in mind: 1. Understand the difference between confidence and unreasonable expectations. You should believe that every trade you place, based on your systematic criteria, is going to be a winner. If you are not confident of that, then don't place the trade. However, realize that over a given length of time, at least some of your trades will work against you. Even a great trading system fails sometimes, so your job is to make sure your system has an overall net positive return. If you are redefining your trading system for every trade in an effort to insure success, that is simply a signal that the system is ineffective. 2. Cut losses. It is critical that you be willing to take small losses before they turn into big losses. I can't tell you the number of times I've heard someone say about a stock "I'm sure it will come back.", only to see the share price continue to deteriorate. Besides doing damage to your account value, riding a loss can be a substantial blow to your confidence. If you are that confident about a stock, then sell it at a small loss and buy it back when you see it begin to turn around. 3. Don't try trade your way out of a loss. (This is an extension of rule number one.). By this I mean don't follow up a loss by placing a trade you wouldn't have normally placed in an effort to make up for the loss. The past can't be changed, so let go of it and approach the next trade in an unbiased manner. 4. Constantly learn. I'm not going to say there is something to be learned with every loss, because sometimes there is not. When there is something to learn though, then you certainly should learn it. More importantly, if what you learn is something that will improve your trading system, take it and apply it to your system. (Notice here that I said to apply it to your system, not just to your next trade.) Your system must have an overall net positive result, but there is nothing wrong with constantly improving your system. 5. Don't let losses paralyze you. It's just part of investing. While a loss may give us reason for caution, take a step back and look at your overall goals and your overall trading approach. If your confidence is injured, then paper trade for a while until you can see that your system has merit and you can invest successfully. It's imperative that you don't simply avoid investing.
From zmostatabi (quoted in Italics) Dealing With Losses OK, lets turn this stuff on its head. Most traders typically like to talk about their winners while avoiding any recollection of their losers. No, not really. On ET you get splurges of admissions about 'how much I lost'. Its like battle honors .. for some. 1. Understand the difference between confidence and unreasonable expectations. .. ..realize that over a given length of time, at least some of your trades will work against you. Not if you've done the time and research to know exactly what you are doing. Even a great trading system fails sometimes. Then its not that great. 2. Cut losses. No. You will often see an initial loss on an entry trade. 3. Don't try to trade your way out of a loss. Wrong. Normally you should never be deeply the wrong way round. Unless you have absolutely no horsesh*t idea at all as to what you are doing, play you way through. You actually entering more opportunities if you use correct betting size and have mastered your expectations. You should know enough about the market on the day to know where it is going and how the gyrations can be exploited. Day trading includes a natural stoploss if you are such a bad trader .. close your position before the market official end of the day. 4. Constantly learn. No. Learn only to answer the questions that need answering. ET is awash with answers without knowing the questions. 5. Don't let losses paralyze you. Why not? Something needs to stop a fool. This is primeval protection. Accumulating losses is playing without doing the work to know the questions and before getting the answers.
Speaking of losses, how often do you normally have losing days ? ie what is your ratio of losing days to winning days? For me it is approx. 4 winning days for every losing day...
I've had 13 losing days this year, and I trade everyday for a firm in Jersey City. Currently working on a 41 day winning streak, hoping to keep the streak alive for the rest of the year.
Don't let losses paralyze you. It's just part of investing... Yeah, social security will bail you out.