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Learning How To Lose In Trading

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Learning how to lose in trading is very important. I’ve said it before – trading will expose whatever personality weaknesses you have. If you don’t deal well with losing, trading will quickly become very frustrating for you. It’s part of the game, part of the job. Hopefully the information below can help you think about how to reframe the concept of losing.

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Winning Is Easy

We’ve all been there, you enter a trade and immediately it pops a few ticks in your favour. We are at that moment the best trader on earth. Trading is easy!

Honestly though, it is nice to have a trade on your side immediately. Any doubts never enter your mind, and now it’s all about maximizing the win. Life is good. You know you are making money on this one. Winning, when it happens, is easy.

Losing Is Difficult

Unfortunately, not all trades go on side immediately. There’s a definite different feeling that enters when a trade goes off side immediately after entering. Doubt – was this not a good trade? Fear – how much am I going to lose? Denial – this will turn around.

Regardless of your immediate reaction, it’s not fun to lose money. Unfortunately my futures trading friends, it’s part of the deal. It still can be both financially difficult, and even more so emotionally difficult. String together a series of losers and you’ll be questioning if you have what it takes.

Losing Is Part Of Trading

No one is a 100% winning trader. Learning how to handle the losing trades is what will distinguish overall winning traders from losing traders. The sooner you figure out how handle losing trades, the sooner your trading life will be easier.

Early in my trading life, I blew more than 1 trading evaluation by being stubborn. I traded crude oil only at the time. If a trade I swore was going one way went against me, more than once I’d sit and ride it out. This is either coming back, or going to bust me. Occasionally it’d come back, but more often it’d bust me. Don’t be stubborn.

Once I learned to not be 100% stubborn, my next hurdle was learning to cut the loss sooner than later. Sure I stopped blowing evaluations with 1 bad trade, but I was eating huge losses. It’s no fun trying to dig yourself out of a hole. I know, I’ve dug several. Sometimes you can get yourself out, but you’re already in a disadvantaged position. So don’t put yourself into it. Easier said than done.

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Ways To Better Yourself

There’s a few things I did to learn how to accept loses, not let them send me on tilt, and improve my performance substantially.

Know Your Exit Plan Before You Enter

Probably the biggest one. Know where your stop loss is going to be. Even better, have it set up as a bracket or strategy (meaning your trading software will automatically put in a stop loss order when you enter a trade). When I trade bonds, a 4 tick stop loss is my usual stop. I at a minimum have it auto populate, I can then move it around but it gets it up there.

Know Your Overall Win/Loss

I track my stats like a hawk. I know what my overall win/loss ratio is, also by product. Once you accumulate enough of a sample size (I’ve got about 500 give or take trades in the bonds for example), you can rely on your stats. If I know I’m a 65% win rate at the 30 year bond, I know already I’m losing (or breaking even) on 35%. 1 out of 3 trades you are going to lose. Knowing this in advance, it’s easier to eat that losing trade, it’s just the 1 out of 3. It’s okay to take a loss, again it’s part of the job.

Make Improving Your Stats The Goal

Along with knowing your stats, my goal each month is to improve on them. Usually I pick 2-3 stats I want to work on. Let’s say it’s average losing amount in ticks. If my average loss on a 30 year bond trade is 3.3 ticks, lets work on getting that under 3. How do we do that? Stop taking losses greater than 3 ticks. In fact, let’s cut a few losers at 2 ticks instead. I’m not saying automatically cut every loss at 2 ticks, you have to play each trade based on its own merits.

Likewise, sometimes I’ll work just on improving my average profitable ticks. Not dollar amount, ticks. It doesn’t matter if I’m trading 2 lots of 10, if my average win is 3.5 ticks, let’s work on getting that to 4. How? Lots of ways. Better entries, maybe less market orders and more limit orders. Taking less trades and focusing on ones that have more upside potential. Scaling in to winning trades and pushing them further. Setting take profits rather than letting a trade go up, then come back a few ticks to hit my trailing stop.

Overall, I find if my goal is work on the statistics more so than anything money related, it’s much easier to eat those losing trades quick. I don’t want my stats to get worse, I want them to get better. I don’t want my average loser to go from 3.4 to 3.9 ticks. I want 3.0 ticks to be the new normal.

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It’s no fun to lose. You can take a day/week/months worth of profit and throw it away in one or a few bad trades. Be proactive, and prevent whatever it is for you personally that causes you to lose. Hopefully using some of the tips above will help you out like they did for me.

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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: 

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

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