The one thing every aspiring ‘Trader’ needs to understand to become successful!

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Accept losing trades. Yes that’s correct, you did read that right as you perhaps spat your coffee out.

 

You have to accept losing trades as part of the trading process and cope mentally and embrace the fact you will lose(often) if you want to become a consistently profitable trader.

 

 

Let me give you an example, such as, when you drive your car, ride your bike or walk you perform with out really thinking,  it has become second nature.

This state of mind is what a profitable trader will aspire to have at all times to become successful and consistent in making returns.

There is a caveat though and that is we are human beings therefore we will make mistakes. We make these mistakes because of things called emotion.

The positive of a losing trade is that it will tell us something about ourselves and approach and one should assess why they lost on that particular trade.

Pull the trigger before it reaching your price level? Become impatient with the market and thought f*ck it I’m going in at this level anyway. Did you put too much on that one position and now you are sweating & uncomfortable with your position as your P&L swings violently Pos & Neg? Set a predetermined take profits price level? Do you even have a stop loss order in place? These are of course are just a few examples.

 

 

 

1Q 2017 I had 12 losing trades in a row and my account was still positive by the end of 1Q

 

You may of in fact undertaken everything correctly. Entry, risk, position sizing, appropriately applied analysis and you were just plain wrong! Well good for you, that’s a perfectly executed trade. You stuck to your trading plan and didn’t let emotions get in the way. The strategy you have applied may only be correct 50% of the time the other 50% you will lose! Hey ho, onto the next trade for every loser you are closer to the winner.

There is not a trader living or deceased that has ever been correct all of the time. In fact most traders will admit they are only correct about 50% of the time. Such as Colm O’Shea the famous hedge fund manager who explains this in Jack D.  Schwager’s book Market Wizards.

 

 

Analysis of your losses is paramount to the evolution of your improvement

 

 

The positive side of losing trades is multifaceted but on this occasion I will focus on what it tells you about yourself.

The market will reveal all about your personality, even if you don’t want to know. Perhaps even emotional traits you never knew you had. Working on ones self will improve your trading success, it is what I focused on a lot of the time and continue to do so today.

Impatient? The market will help you loose that hard earned cash. Greedy, the market will tease your greed out of you. Fearing, the market will scare the crap out of you. Perfectionist, the market is waiting for you to give you a surprise and it won’t be perfection.

What’s that I hear, you have an engineering degree, a PHD I hear you say, you’re an academic? The market doesn’t care who you are, where you are from or what you have achieved.

It will welcome you with open arms, embrace you and exploit your weaknesses with absolute pleasure.

 

The most infamous emotions in trading are Greed & Fear

 

 

If losing is part and parcel of trading what can we do about it? ACCEPT IT! You have no choice anyway.

Can a football team play an entire season and not concede goals and lose? No is the answer but they can still win games and even the league.

One of the simplest methods of becoming a successful trader is having enough in your trading account to trade another day. Keep that little statement in your head and you should do OK.  If you blow your account, you are out of the game. GAME OVER. Reload. Market will say “Thanks very much! Please come back I’ll be waiting for you”

 

Survival is a key ingredient to trading success

 

Strict RISK  parameters must be adhered too. One word you will hear or read a lot about which I have intentionally not mentioned until now is discipline. This is a must have weapon in the war on winning. Not being right, winning. There is a difference. Leave your ego at the door. What did I mention earlier? The market will eat your ego for breakfast lunch and dinner and continue to digest it as long as it is on offer.

 

 

If we go back to what I was writing at the beginning of this article. I stress about the comfort of losses. It should be understood that the losses are aligned with a good strategy that has been back-tested. And the win ratio has been confirmed. Then the losses will get easier, I promise. I know from over 10 years of trading.  How did I become so comfortable with losing trades?  I will risk no more than 1% of my entire account on any one trade. Plus, I will only have any number of trades open to limit my over all exposure to the market. Hedging techniques lowers your account exposure & is a more advanced methodology in reducing your risk and implementing trades. This will be written about in another post.  Remember what I mentioned earlier about the market teaching me a lesson and having to endure 12 losing trades in a row in 1Q? That tested me to my emotional limit but I didn’t let fear stop me putting on trade number 13. Which was a really good winning trade. I could go into details of trade management to reduce risk further but that is for another post!

Capital preservation is just one VITAL part of the process in becoming successful trading the financial markets but in my opinion it is the most important                                            

 

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