Thursday, May 17, 2012

Dealing With Losses

The Frustration of Losses
No one enjoys being wrong. No one enjoys taking losses. But until one learns to see losses in a different light, one will never be free from the emotional pain as a result of taking losses.

Personally, I see losses as the cost of doing business. Just like any business which incur expenses and cost, trading is similar in this aspect. One may have a winning streak for a long period but yet will still eventually face a loss.

The Nature of Losses
Losses does not always mean that you are doing something wrong. Notice the word always. Sometimes, it could be due to pulling the trigger too early or prematurely closing a trade without a justified reason. Yet, if one has executed his strategy properly, then one should learn to move on and be eager and excited about the next trade since we can't always predict what the market might do. Just as Mark Douglas puts it, every moment in the market is unique.

Trading A Numbers Game
Trading being a zero sum game, involves probability. Once you are able to see that it is merely a game of probability and you have backtested and are convinced that your strategy puts the odds in your favor, then what you simply need to do is to keep executing your strategy! You won't know the order of the outcome eg lose lose win but you do know that if your strategy has a success rate of 80%, then the more trades you take, the likelihood your results will skew towards 80%.

Successful traders always move on after taking a loss and look forward to the next trade because they understand ultimately, if they take enough trades and execute them properly, he will always win. In fact, they already see that they have already won.

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