May 5th 2005
Don’t Let a Setback Get You Down
If you want to become a winning trader, you must be willing to face loss after loss without letting it get you down. Upon facing a loss, our first inclination is to feel disappointed, but how you react emotionally is merely a matter of how you look at matters. If you go in with unrealistically high hopes, you’ll feel devastated when you encounter a setback. If you expect a setback here and there, however, you’ll feel at ease and ready to bounce back quickly when you’re knocked down. Babe Ruth struck out over 1000 times on his way to setting the homerun record. A top-notch salesperson may make a sale on only one out of ten cold calls. And a winning trader can come out ahead even if the majority of trades executed are losers. It’s daunting to think about it, but you may see many more failures than successes on your way to becoming a seasoned, master trader.
Seasoned traders know how to take losses and setbacks in stride. They don’t mull over past defeats, or trading losses. They see a setback as an opportunity to hone their skills, grow, and improve. They examine what they did wrong, learn from their mistakes, and view a temporary setback as a launch pad from which to achieve higher future performance. With proper risk management, you can win as few as four trades out of a dozen and still come out ahead. Rather than getting bogged down with self-doubt, regret, and defeat, winning traders use a “loss” as a motivator for change and improvement.
How can you afford to take loss after loss and be happy about it? It isn’t easy. Obviously, if you are losing big over and over again, you’ll blow out quickly, and every loss will make you feel even more discouraged and beaten. To feel safe and at ease, you must believe that you can survive the learning curve. Risk management is vital for your survival. Limit your risk on any single trade. In addition, trade selectively. Only take setups where you can potentially make a large profit with relatively little risk. That’s still not enough, however. If you don’t improve, you’ll still end up in the red. You must feel that your skills are in constant flux in order to take losses in stride.
Market conditions and your mood can impact your trading performance. If you trade in market conditions where you have trouble making a profit, you’ll feel stressed out and you will likely choke under the pressure. It’s better to trade under conditions where you are comfortable most of the time. Your first priority should be on making enough winning trades to profit overall. Even then, you’ll still see more losing trades than winners. But once you feel secure that you can make profits, you’ll be able to explore new territory with little fear. Once you know that you have a basic set of skills, you’ll be able to take losses in stride. So when you feel beaten, focus on the big picture. As long as you manage risk and continue to improve your skills, you’ll eventually master the markets. In the context of the big picture, the losses here and there are just part of the learning experience. As long as you achieve profitability in the end, occasional losses are nothing to worry about.