Foregoing the political correctness of trading and the lessons it provides us – a trader needs to simply strip out the Alpha aspect of his (or her) personality. Rather than taking on the market and the universe itself, accept that every trader, be it on his personal account or in the skyscrapers of New York, London and Tokyo, make losses and (they hope) cut them.
Take a moment to re-read the title of this tip for it deserves the time to be read not just now but every time that you are not only in front of your trading terminal but in the market.
Foregoing the political correctness of trading and the lessons it provides us – a trader needs to simply strip out the Alpha aspect of his (or her) personality. Rather than taking on the market and the universe itself, accept that every trader, be it on his personal account or in the skyscrapers of New York, London and Tokyo, make losses and (they hope) cut them.
No matter how we chose to dress it and transcribe it, a loss is a loss and we all have them.
Accepting from the outset that the trade may go against you, either your too early or just wrong, and knowing exactly when and how to exit the trade (as per your plan), will allow you to stop a loss turning into a large loss.
Experience has shown that the market forgives a trader that accepts a loss, and learns from his mistakes, but in turn it punishes with all of its might the trader that holds onto a loser. Accepting loses can actually be the life blood of a successful trader as it not only allows him to reassess his analysis but also to restructure his financing so as to finance winning rather than losing traders.
In short, don’t spend the profits before you make them and forget that a loss is only loss when realized. Keep you losses to a minimum and count the profits when they are realized and in your Free Equity balance.
As with every industry from manufacturing through to the service industry, losses are part and parcel of doing business. If you’re never making a loss, then you are either in the midst of a trading honeymoon or not trading properly and kidding yourself with some creative accounting paper trading.
