Learning to Accept Losing Trades

Successful traders who make money consistently over time have learnt how to deal with losses. They know that taking a loss on a trade is just the cost of doing business for a trader. They think of trading losses as a business expense, they are inevitable, but as long as they are able to generate more profit than loss then they’ll end up profitable.

Taking losses is something that new and even experienced traders struggle with on a daily basis and yet it is so integral to trading. The traders who go on to make money consistently in the markets are those who have learnt to take losses and accept responsibility for their trades.

Have you ever had the feeling of utter frustration when one of your trades goes to stop? You say, “I knew I shouldn’t have traded that, how could I be so stupid”. These are very common thoughts and feelings from a trader who hasn’t quite learnt to take losses yet. They then watch the market some more, find a valid trade setup and yet when push comes to shove they don’t put on the trade as they are paralysed by the fear of taking another loss. The trade then goes to target and the trader is left kicking themselves again. These feelings can start to multiply when we have multiple losses in a row so it’s important to work out whether you have learnt to accept losses in your trading.

To be able to learn to accept loosing trades you need to have a clear defined strategy which you can execute day in and day out flawlessly. If you are consistently taking trades that meet your full strategy criteria then you know that when you put on a trade you can be comfortable with the trade, win or lose. That way if the trade does go to stop you shouldn’t be disappointed as you did everything correctly leading up to the trade and then you handed the outcome over to the market. Trading can be somewhat of a parody as even if you trade well you can still lose money. It’s so important to concentrate on what you can control which is the process of executing trades without hesitation when your strategy sets up. Once that is done there’s nothing more you can do, whether the trade goes to stop or target is up to the market forces to decide.

Professional traders stay focused on the process of their trading. If your strategy has an edge then if you consistently execute that flawlessly over time you will come out ahead. Remember, if you’re taking good trades, there’s no reason to be frustrated if they lose you money. You should have the conviction that if those trades setup again tomorrow you would take them again in a heartbeat. When professional traders take a loss on a trade they don’t dwell on losing money, they simply look ahead to where their next trade might be setting up in the markets and take it without hesitation when it does setup. Someone who hasn’t yet learnt to accept trading losses would still be mulling over their previous loss that they forget to look up and they miss the next trading opportunity that comes along. Don’t be that second trader!!

If you compare trading to basketball, it really helps to make sense of the mindset needed to execute a skill over and over again. If a professional basketball player takes a shot and misses the basket he’s not going to get frustrated and down, instead he will get on with the game and he will be ready to take that next shot. He knows that if he executes his shot flawlessly he will get more shots in than not. If we take the same mindset into trading it’s clear that some of the trades we take will miss our target however we have to be willing to take that next trade as over time we will win more than we lose. A famous quote from Michael Jordan sums losses up quite superbly “I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed”

Remember, stay focused on the process, NOT the outcome!

Happy Trading!

Regards,
The TWP Team