The title is really descriptive of what traders think about themselves after posting a loss. After all, the future is uncertain – will you ever post another winner again? That is a rhetorical question of course, because we cannot predict the future. But if you plan well, do your due diligence, study, focus and make your bets accordingly the odds are good for you. But, how do you deal with a loss?
Psychology can play games on you. Given the mass unknowns we move along the risk curve from fear to greed. Sometimes we press and get it right, other times we press and get it wrong. In trading we certainly have our share of gains and losses and with options they are magnified. This is why I continually maintain a good risk discipline. My self worth is not my net worth, so I can stomach a loss and not be rattled (too much!). Do I feel bad when a trade goes against me? I’d be lying to you if I said no. But I don’t feel like a loser – because the next big trade is probably just around the corner. Like you, I want to win – every time. That’s the goal, but realistically it’s just impossible. So, I give myself a break by knowing and understanding the odds of success are extremely high as I trade, and they go even higher as I trade more. Given this information, I can either let the Trading Gods take over and take me places (most likely the crowded trader’s graveyard) or I can be in control. I choose the latter.
Had a Bad Day?
I know trading losses will happen. It comes with the territory. In our service we recently had a blowup on some RVBD calls, they went down after earnings to virtually nothing. These things happen everyday. But it’s how do we deal with those losses, better yet how do we recover from them – that separates the pro from the amateur. I’ve known many traders in my years who feign discipline and just roll the dice. They see the exit door eventually – and not by their choice. On the other hand, some embrace their losses; learning from them as experience is the best teacher. What went wrong? How can I improve? Did I size correctly? These are the questions asked that make traders stick around for the long term.
Sizing is the one area that ruins traders – permanently. Too much can be a recipe for disaster…and it only takes one play. They not only lose their capital but they are so far gone emotionally that behavior is changed forever. Never will we see the gunslinger firing from the wild west – we’re more likely to find this cautious creature who may put some money down on a very conservative play. Keep your trades in control, use a disciplined method of risk management – for me it’s 2-3% of capital on a trade – and allow yourself to withstand tough outcomes – because as the day is long you will surely have them.
Excellent article!
The active trader has to be prepared to deal, soberly, with both wins and losses. While everyone would agree that winning is better, losing is a part of life, so, we have to maintain focus and avoid putting ourselves on an emotional roller-coaster.
I wasn't in the RVBD trade so I _could_ say I was smart. But in fact, I was just lucky. I'd wanted to get back into RVBD for three months so I was eager to get in on the trade – – without any of the usual analysis on my part. But the progress of the trade moved so fast, I couldn't get a decent offer. Without time to consider another entry point, I ended up letting the trade go rather than chasing the bids. As fate would have it, what I thought was going to be a good trade 'went south' and I ended up dodging _this_ bullet.
Stay focused. Be comforted to know that when you have a gifted financial analyst like Bob Lang in your corner, that the long-term odds are probably on your side.