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Don’t Sweat The Trading Losses

My whole life, I have been very involved in sports. Ice Hockey, Soccer, Golf, and Tennis are the sports I love to compete in. Playing hockey at a high level, I learned how to win, consistently. There were always teams in the league that would win consistently and others that would lose. When we would play a team that had a bad record, sometimes they would be leading the game for a while but I never worried. It was almost like we could be down by a few goals and we knew we were going to win in the end. This is because of our positive attitude which was due to our rock solid confidence. Sure enough, most of the time no matter what the score was during much of the game, we would come back and win. The winning attitude almost always beat the losing attitude and always will. The winning teams play with one thought, that’s “to win.” The losing teams also play with another thought, “not to lose.” The latter equates to a lack of confidence and fear and that is a recipe for consistent failure – losing.

As like many of you, I love the game of golf. I have a childhood friend whom I play with sometimes. While our skill levels are near equal, I almost always beat him. What happens is that as soon as he hits a bad shot and I mean a really bad shot, he can’t recover mentally. He allows this shot to have such a big impact on his game that the rest of the round of golf is a disaster for him. I too have a bad shot sometimes. The difference is that I don’t let it have anything to do with my next shot. I know the bad shot will happen sometimes which means it’s actually a part of winning the game. As soon as my friend hits a bad shot, he is finished, I win, game over.

I love to win, I hate to lose

Having so much success in a sport growing up, you feel like there is nothing in life you can’t do. No matter what the task, not succeeding is never an option or thought. So, you can imagine how shocked I was when I entered the trading world and was told that you have to be a good loser in order to win. HA!! That had to be a joke I thought… There is no way I am going to lose because I hate losing, I hardly ever lose at anything because I try as hard as I can to work harder and smarter than my competition. It didn’t take long to realize that this was 100% true, I had losses and that didn’t sit well with me. I tried to eliminate them but as I did, I also eliminated the winning trades. This was not good, I hated losing. Slowly though, I figured out the secret to trading from experience and a friend of mine. It all depends on your definition of losing. In my early trading days, I had the wrong definition of the word “loss.” In my very early days, I actually thought I would be the one trader in the world that never lost. Can’t believe I’m admitting that in an article, but it’s true J.

Perception is everything

Think about all the setbacks and losses you have had in other parts of your life; financial, relationships, job promotions, and more. Haven’t they always made you stronger and led to something “better?” Losing is a very necessary part of winning in my humble opinion. As our founder at Online Trading Academy, Eyal Shahar says, “Life is all about perception.” If I had a dollar for every time I have heard him say that, I wouldn’t have to trade. He is so right… The key is to categorize. If I perceive each trading loss as a loss or losing, it’s not going to sit right with me, I can’t stand losing! However, if I put each trading loss in its proper place which is in the “winning” strategy category, all of a sudden a trading loss is a must for success.

I was in the Extended Learning Track (XLT) one time, leading a session and I pointed out some short term income trading opportunities that I ended up taking in my account. I went over the factors that led me to this conclusion and everything seemed fine.

Seiden Fig 1

The trades were in the Euro, S&P, and Gold Futures. As you can see above, two of the trades were losers and one was profitable. As you can also see above, the net result of all three trades was a profit of $2,652.50. Notice the losses are much smaller than the gain. The losses should be NO big deal and small. Your position size should be such that you are not risking more than what you determine to be a truly acceptable loss. You should make sure this number which is really your ultimate risk is a number you are very comfortable with. With the numbers above, I can be wrong and lose money on two out of every three trades for the rest of my life and do very well. So you completely understand, both losing trades were profitable for a bit and then stopped out after moving my protective stop order closer to my entry price. These were not full stop losses but even if they were, it would still be more than fine. Taking your proper losses and holding your positions to your profit targets is the key to small losses and larger profits.

These two losses are very small. I do have bigger losses than that sometimes. If you are doing this right and following the rules, your batting average should be well north of 50% but the point is, it doesn’t need to be. If your losses appear scary to you, one of the main reasons is that you’re simply taking on too much risk for your comfort level. If the loss itself makes you cringe with anger or fear, you also have the wrong perception of losing. You have “losing” in the wrong category. Take the loss and move on.

Like Las Vegas, I don’t care at all that I was only 1 for 3 that day. I know that as long as I stick to my rules, I am running a strategy that is very profitable because the risk is low, the reward is high, and the odds are stacked in my favor. I know that I will only achieve profits if I include and accept losses from time to time. When you shift your attitude and understand this, the word “loss” all of a sudden means the same thing as the word “win.” On this day, the first of the two trades were losers. If you go and beat yourself up over a loss or think you did something wrong and become paralyzed by fear and failure, you will stop executing your winning plan and never see the gains.

From my experience, the rules that truly stack the odds in your favor are not that difficult. Quantifying supply and demand using our Odds Enhancers is key. The challenging part is helping people shift perception of loss to the win category.  I meet people often that actually think I and other instructors never lose. They want to take our classes because they think they will learn to never lose and only have winning trades all the time. Even a trader with a high winning percentage certainly has losses. None of us like to lose, I know firsthand from competing in sports. Just like in sports however, falling down in practice is a must if you are going to skate faster. Striking out from faster pitches is a must if you are going to make it to the big leagues, swinging your driver harder and slicing the ball 100 times is a must if you are ever going to hit a 300 yard drive straight. Losing in trading is great so long as it’s proper losing. To become a professional winner, you have to first become a professional loser. This is a road block that many people never overcome which is why many people fail at market speculating. It’s the few market speculators with the proper perception that get paid from those with the wrong perception, the transfer of accounts. If you want to change your results, try changing your perception of loss.

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.