Wow……. losing, losing would have to be one of the most challenging parts of this business to come to terms with. Generally throughout life from when we were small children to our school years and eventually in our working lives we are taught consistently that winning is the desired outcome for all that we do. When you look at sports we are constantly looking to win, all of life is one big competition and we must excel and win as much as we can. This is our training and thus our belief system is that losing is wrong and losing is bad and losing makes you a failure and on and on it goes.
This is in exact opposite contrast to trading, in trading losing plays a major role and more often than not you will have more losing trades than winning trades. this is then a completely different mind set to what we are taught in life generally and thus can be quite difficult to assimilate into your trading initially. Coming to terms with the losing trades and excepting them can be a very long and highly emotional experience.
That is why most literature recommends that new traders starting out should only use money that they can afford to lose. This is not because you will definitely lose this money, even though for total newbies this is a highly probable outcome. No this is because if you can afford to lose this money the emotional attachment you experience when losing trade after trade can be substantially reduced. This can help you emotionally keep your eye on the ball and thus execute your plan as per your rule set, trade after trade whether you are winning or losing.
Losses are an integral part of trading and too many people spend too much time trying to figure out how to trade with the fewest losses. This is not to say that you should try and lose all the time either, but my point is that spending all your time trying to filter this and filter that is an effort directed towards failure. Take your losses and then forget them. Get past them, recognize that they will happen a lot and learn to handle the one thing you are in complete control of. How much risk you take and the size of losses you take. Then the only thing you will be left with will be profits.
I have read so much literature that states don’t worry about your winners they will take care of themselves just focus on your losers and try and figure out what you did wrong. I am in exact opposition to this thinking, the law of attraction states that “losers attract losers and winners attract winners”. Based on this information you should take your loss, accept it and forget it, then move on to the next trade. Focus on your winners and concentrate on what it is you are doing right and focus on replicating these actions. This is the path to profitable trading. Losses are just losses, make sure your winning trades are greater than your losing trades in aggregate and you are home free.
With trading you only need one way to make money or one system say. There are literally thousands of ways you can make money in the markets but here’s the thing. You only need one, focus on it, master it and replicate it, don’t worry about the losses they are just part of the plan.
I would be remiss if I didn’t mention the fact that back-testing is the only way you can see just how this process works. For all my back-testing I use ForexTester, with this software you can experience and simulate what real trading is like and prepare yourself for all the losses that come as an integral part of trading, accept them and move on to the next trade.
Perry
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November 2nd, 2010 at 3:18 AM
Good post, it reminds me of when I used to play poker.
In poker also, losing is an integral part of the game, and something that you have to come to terms with.
One of the hands that I remember distinctly was that I was on a flush draw with three other players. I can’t remember the exact odds, the chances were out of my favour but not by as much as 1:3, so the best play was get as much money into the pot as I could. In the hand I remember I actually lost, but I didn’t feel bad (well a little disappointed of course!) because I knew that I was playing the odds – the strategy had a positive expectancy.
That sort of situation would happen a lot, but I remember that time particularly because it was probably the first time betting as much as I could knowing that the chances were I was going to lose the pot.
Forex is much the same, although obviously you can never know your odds exactly, but as you say you have to see losses as just a part of your system, and not dwell on them too much.
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