Yep, I’m a loser. By saying “I’m a trader,” by definition, I’m saying that there are times I lose. No one makes money on every trade. (Okay, I’ll ignore the “roll out and down until you make money” strategy which just teaches you how NOT to take a reasonable loss when you should.) So I’m a loser…and I’m okay with it. And you should be, too.
If you can’t stand to read that first sentence without wincing, then you’ll struggle with any kind of trading. Learning to take a reasonable loss is one of the most important concepts in successful long-term trading and it’s one that almost everyone has problems with in the beginning. (And some waaaay past the beginning, as well.) So how do you get over it? There are lots of ways and what worked for me may not work for you. Of course, then again it just might!
What happens when you close a trade that lost money? Do you quietly close the trade, write the final words in your journal, update your trade profit and loss report, stand up, stretch and continue on with your day? Or do you throw your pencil in disgust and stalk around the house muttering darkly (“…stinkin’ market…”) while your spouse, kids and all the dogs in the neighborhood avoid you?
And which would you RATHER do?
How do you become the person your family and friends (and dogs) don’t avoid whenever you close a trade? Let’s explore some possibilities:
- Redefine “winning trade”
To start with, I had to get rid of the concept that the way to determine a “good” or “winning” trade was whether or not I made money. It’s natural to track results based upon how much we made or lost; after all, we’re in this to make money, right? But sometimes you do everything right and the market still takes your money. (See my blog on my January losing trade.)
So what do I do with my profit and loss? Do I completely ignore it? Of course not. But there’s a huge difference between tracking something and dwelling on it. When I take a loss, I complete my trade closing activities (update my tracking report, write in my trade log, schedule my trade review, etc.), then move on.
At this point, it morphs into a trade like every other. I will review it, dissect it, turn it upside down and inside out to see what went wrong… but with the same level of detail and care, I would take as when I make money on a trade.
So if I don’t use profit and loss as my trade barometer, how do I know if it’s a good trade?
Very simple: If I followed my plan, it was a good trade.
I understand that my trade plan will not always result in a profit and that’s okay. But it IS constructed so that if I keep following it, I’ll make money over the long-run. And yes, sometimes following it can be challenging to the point of painful. “I’m SURE the market is going to reverse, so I’m going to ignore my rollup rules!” I did that… once. And, yeah, I got burned. But even if I hadn’t, it was STILL the wrong thing to do. If my plan needs to be modified, then I’ll make a note and change it… for the NEXT trade. (And that only happens after I’ve verified the change, back-tested it and understand its limitations.) But this trade? The one I’m in right now? It follows The Plan I wrote before I entered it and I do not deviate.
2. Ignore your profit and loss during the trade
This is a hard one for many people. They’ll be up some money one day then give it back the next… and that bothers them.
Trades need room to breathe though, and their value will naturally fluctuate. Unless you’re dealing with values nearing target profit or max loss, it’s irrelevant. If it helps, put on blinders.
By constantly NOT focusing on this one aspect of a trade, you’ll find it easier to ignore taking those inevitable losses. Switch your focus to your T+0; it will serve you MUCH better.
3. Give it time
This may be a surprise, and I hate to be the one who bursts your bubble but…you may not turn into the Dalai Lama of trading overnight.
Losing money may always bother you but put a time limit on it. Once the trade is closed, allow yourself until midnight that day to snarl and snap (as long as it’s not to the aforementioned spouse, kids and dogs!) and then move on. It’s over and done and there’s nothing that will change it. Now focus on the future.
4. Appreciate that it’s over
If you’re like me, when you close a trade at a loss you feel a sense of relief since you’ve probably been battling the darned thing for some time. Now the fight is over – take a deep breath and start looking at the next trade.
5. Get moving
Don’t sit there and obsess over it. Get outside and take a walk, go to the gym, dance to fun music (feather boas, anyone?), anything that gets you up and moving around. Burn off some of that negative energy! Plus, the benefit of a lovely nature walk is that it’s hard to be grumpy around green trees, flowers and the sunshine. Bonus points if you spot an otter running around.
Sometimes even having your hair done while a friend supervises can be cheering.
Although I started this blog with the statement “I’m a loser” this is NOT how I see myself. (I just wanted to get your attention.) Even when I lose money in a trade, I still consider myself a winner if I followed my plan and managed my risk properly. I consider myself a winner because I am still in the trading game, I’m still improving and I’m still learning. I may lose trades but I still win.
I’m a winner!
Written and contributed by Cynthia Sarver, Successful Options Trader of the Month – February 2016
William Smith says
Great work Cynthia! Things we all need to be reminded of from time to time… well, especially the first part of this year!
D G says
Very nice, job…thanks for the post.