the mindset to have for dealing with losses

Discussion in 'Psychology' started by Gordon Gekko, Jan 24, 2004.

  1. this isn't anything ground breaking, but i still think it's good.

    if you have a way of trading that makes money...and say your loss rate is 50%, there is only a 6.25% chance you will have 4 losers in a row.

    when you have a loser, or a series of losers, what you should think to yourself is: "a win should be coming up soon" or something.

    so there's really no need to be discouraged by a few losing trades, as long as they're not abnormal.

    for example, on friday, my first 2 trades were small losers. i knew i would take the next trade no matter what, but just to feel better i thought to myself that i'm probably due for a winner soon. my next trade was a big winner.
  2. If your system has a 50-50 win rate, and assuming that rate is stable over time, which it probably isn't, then the probability for the fourth or fifth or 75th trade after a string of losses is still 50-50.
  3. actually, at the moment, my system has a better than 50% win rate. i just used 50% as an example.

    anyway, yes, in the example i know each trade is 50/50, but still, long losing streaks should not happen often. that is the point i'm making.

    in other words, say you have a 50% win rate and you just had 3 losers in a row. although it is 50/50 the next trade is a winner, it's ok to realize that if you do get a 4th loser in a row, this will only happen 6.25% of the time.
  4. MaxMin


    Knowing the odds of a large string of losses can be helpful in keeping confidence going. For traders, having strong self confidence is very important and shouldn't be underestimated. Without confidence, a trader is unable to make the decisions necessary to trade well.

    But keeping confidence going is only part of the equation. The other part has to do with detachment. Without getting into a dissertation, let me just say that bottom line, confidence isn't the same thing as expectation. If you can build your trading confidence without building an expectation about what will happen in the future, then that type of confidence is helpful. Frustration is close behind expectation. The best mindset is simply to put the past trade or trades out of your mind, whether they were winners, scratches or losers, and to simply focus on what is going on with the current open trade, or the current market movement which may lead to a trade.

    The point of trading is simply to be a maximizer with the current open trade, in the current moment. A maximizer is someone who sees the current situation, and makes decisions to maximize the current open profit or to minimize the current open loss, regardless of what the open profit or loss was at some previous point in time, or what is expected to occur at some future point in time. A maximizer is able to make rational decisions based on capturing the most available open P&L, without getting emotionally attached to a trade. A maximizer settles for good enough, rather than being paralyzed by the desire for unfulfilled perfection.
  5. Good point, GG. Similar to sales, Every "no" gets you closer to a "yes."

    Good and positive way to look at losses.

    I think the goal here is to have small losses when a loss occurs yet have (much) larger wins when they happen.

    Good post!

  6. yes its good to not get discoursaged by a few losses and my mentor always used to say "dont look back"

    I would however be very careful of the mindset that "Im probably due for a winner soon" after a series of losers
  7. Steelhead: I totally agree!
  8. so there's really no need to be discouraged by a few losing trades, as long as they're not abnormal.
    Gordon Gekko ( agree with you here)

    plus: if you plan your trade and trade your plan then a few losing trades just might turn out to be a few mistakes learned. get out, take your loss, learn from your mistake and move on!
  9. abogdan


    I think the key here is to try to develop a feeling of being proud of yourself for taking a small loss rather then sitting on a loosing position. Try to come up with a little treat for your self to celebrate your discipline. It helped me.
  10. traderob


    nice idea
    #10     Jan 27, 2004