Handle Losses Like a Winner
With a webinar from Steve Ward taking place for Trade With Precision clients next week, we thought it was timely to share with you some of the key lessons we have learnt from Steve over the years. Steve works with both institutional and retail traders all around the world, is a highly sought after speaker, an authority on trading psychology and an accomplished author. Todays complimentary newsletter is a timely excerpt from Steve Wards book, High Performance Trading. Strategy 16 - Handle Losses Like a Winner.
Losses Are a Part of Trading
Can you name a great trader who has never had a losing trade? Losses are a part of trading. I remember hearing Van Tharp say that a loss is to trading what breathing out is to the breathing cycle. It is not unusual for new traders to have difficulties in taking losses. After all, losing is not something to be desired in most areas of life, so why in trading? We are generally conditioned culturally to aim for very high percentage success rates; in exams, high percentage scores are required to achieve the best grades. But in trading you could be very profitable with a 40% winning percentage; indeed, you could even be amongst the top earning traders. There are not many exams where you can get top marks with 40%.
Taking a loss is not something to be aimed for or enjoyed but at some level you need to accept the fact that losses are a part of trading. And only once you accept the fact that losses are an inevitable part of trading will you be able to trade freely and without fear.
Learning to Take a Loss
“Good trading is not about being right, it is about trading right. If you want to be successful, you need to think of the long run, and ignore the outcome of individual trades”
– Curtis Faith, Way of the Turtle
There are lots of different strategies and approaches that you can use to help you to take and deal with losses more effectively. Ultimately your beliefs and attitudes around what a loss means will have the biggest impact to you. I remember working with one trader who saw a loss as a failure, a setback and a waste, and combined with his perfectionist tendencies this made taking any kind of loss a real challenge, and emotionally quite painful and difficult. But once he had challenged those old beliefs and made the decision to see losses as being a part of the trading experience – something to learn from – and had made the distinction between a losing trade and a bad trade, then his ability to take losses, and to deal with them, dramatically improved.
“I think one of my strengths is that I view anything that has happened up to this point to be history. I really don’t care about the mistakes I made three seconds ago in the market. What I care about is what I am going to do from the next moment on”
– Paul Tudor-Jones (in Market Wizards)
Develop positive beliefs around losses
Accept that losses are a part of trading, and that setbacks and challenges are a part of achieving any challenging goal. Embrace the challenge. Tiger Woods famously said, “I smile at obstacles”.
Keep perspective
Imagine the number of trades that you make in a year and put a single loss into the context of the total number of trades. Imagine someone making 5 trades a day, 25 a week, 100 per month, and over 1000 a year; each trade, a losing trade, as a percentage of those trades is just 0.001%!
Learn and move on
Know that every trade, every loss, every mistake, every setback has something valuable in it… LEARNING! Learn from your losses, mistakes, errors, setbacks. Ask yourself, what have I learnt from that experience? How will I use it to make me a better trader? There is no failure, only feedback, and feedback is the breakfast of champions. Taking learning from losses and setbacks helps to release the emotional attachment to the event – you have acted on the feedback, and can now move forward more easily. See the implementation of the learning from the loss as an investment in your future trading career!
Take a third person perspective when evaluating your losses
Imagine watching yourself trading on a screen, or imagine standing behind yourself as you replay and evaluate your losses. This helps you to evaluate and identify the key areas for improvement, whilst at the same time removing the emotion of replaying the events again.
Don’t let a losing trade become I am a loser
Refuse to let your losses define you as a person. Separate out the behaviour from you, the person. Separate a bad trade from a losing trade. What is the difference? A losing trade is one in which you traded your strategy, stuck to the rules and were disciplined, and yet had a negative P&L as the outcome. A bad trade is a trade that was a non-strategy trade, and is a bad trade regardless of whether you made or lost money!
By Steve Ward (excerpt from his book, High Performance Trading)
Regards,
The TWP Team
www.tradewithprecision.com
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