Learn to Be Okay with Your Losses

Did you click on this post because you just experienced a string of losses?

Don’t worry, I got you!

Today we’re going to talk about a really important topic on how to shift your paradigm of what loss in trading means so that you can become comfortable with losses and go on to become a profitable trader. now I want to begin this with a little demonstration

So let’s say I’m holding a d20 dice. (Because, yes, I do play dungeons and dragons)

I’m gonna take this dice and I’m gonna put it in one of my hands – I want you to guess which hand it’s in.

All right. Ready?

Which hand am I holding the d20?

Did you guess right?

Did you guess left?

If you said left, you’re correct!

Okay so if you lost that guess, how did it feel?

I’m guessing it didn’t matter – you might not have even guessed! You probably didn’t really care whether you would win or lose. There was no real incentive.

So we take bets on life all the time that have maybe have dual outcomes – a yes or a no answer.

Sometimes, it’s easy to make those guesses. Sometimes, it’s not. When there’s something at risk that’s valuable to you, that’s when it becomes more difficult to take a loss on a bad guess or a bad bet.

The Truth About Risk

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See, when we’re trading in markets we’re always approaching this with some kind of risk. If you’re putting money on the line, even if there’s a chance to return more money, there’s also a chance to lose.

It doesn’t matter if you have a high win rate strategy. It doesn’t matter if you have all the market knowledge that you could possibly need – except for telling the future. Because you’re always going to be risking, you’re not going to be placing bets with certainty. There is no certainty in markets.

So in order to show up for the wins, we have to be there for the losses. What professional traders and smart traders do is risk only what we’re comfortable losing. If you want to get technical, this turns into a certain percent risked per trade so that we’re always trading an amount that reflects the value of the account (such as 0.3%-2%per trade). If it goes higher, you risk a little more because it’s a percentage, and if you start losing money, you risk a little less because again it’s going to be relative to your account size.

When you show up to trade markets you have to be comfortable with taking losses and it can take time to internalize this. It usually takes losing money – a lot of money – to finally accept that when you finesse with your strategy, like when you move a pre-planned stop loss, it’s a chaotic experience.

You’ll get to a point when you want things to be solid, standardized, and steady. Sometimes it takes a year or two to be rattled about in the markets enough to want to settle down, stick with a strategy, stick with a risk strategy, and see it through the long run.

I want to make a couple of recommendations to help you start looking at losses in a way that doesn’t scare you anymore.

1) See loss as part of the natural transaction of the markets

The first tip I want to give you is something I write about in my book the seven habits of successful day traders.

I want you to think about the various ways in life that there are transactions – for example, right now you’re probably breathing. (I hope!)

With every out-breath, there’s an in-breath. With every in-breath, there’s an out-breath.

You can’t just take oxygen – you also have to give back some carbon dioxide. There’s an exchange albeit a more equitable one. There’s a balance between the two.

Think about other transactions in your life, such as with relationships – you sometimes have to put in a lot of work into the relationship, even when you’re not getting much out of it. (For example, perhaps with parenting)

When one person is putting in all the work then usually there’s an imbalance and the relationship can get ruined.

Now, with trading, we do want to win over the long run, we do want to be more profitable more often than we lose. We achieve this by having a higher return on what we risk, or having a high win rate – these are variables that you can adjust and play with to find something comfy that works for you.

2) Risk only what you’re comfortable losing

The second thing I’ll mention is that it’s important to risk only what you’re comfortable losing.

Money is very much a psychological concept.

It’s something that we all agree upon in society to use to measure value – it’s ideally a fair trade of value.

If I just bartered with you and I only had eggs and you had apples which I want but you don’t want eggs, then I’m not going to be able to get apples.

So money stands in to offer an exchange in a way where we can then use that note to go get the goods and things we need somewhere else. But it’s something we all agree upon in order for it to work.

if I had a little island and you brought your dollars to me and I said we exchanged only seashells here, I don’t want your dollars, then it’s just paper. It’s useless.

So when you think about money as something that’s psychological, you also have to think about the ways your emotions are tied to different ranges of money.

something like “too much money” is different from person to person. Same for losing money.

Take paying for dinner – for example – for some people, paying for a $30 dinner is not a problem. For others, that’s way too much, that could be a day’s worth of wages.

So remember that you’re going to have your own comfort level of what amount feels appropriate for you to risk,

Maybe it means starting out with a very small account as you learn your way through the markets, where it’s okay for you to lose 20 bucks on a trade. Maybe that’s where you need to start and over time your conception of money will change, especially if you’re in the markets (you’re going to learn a lot about how money works, how it moves, and how prices change). Later on, you may be able to get comfortable risking like $4k on a trade because you have a $400k account – that doesn’t feel like a lot of money anymore compared to what you have in store.

Remember that money is psychological by working on your psychology. Read personal development books!

Using personal development as part of your trading strategy is really important because a lot of trading comes down to managing what you’re thinking, what your beliefs are, what your fears are, and what your expectations are.

3) Learn From Those Who Came Before You

That leads me to the last suggestion – find out what professional traders lose each year. Even if they win on the year, find out how much they’re actually losing in order to get that exchange.

Keep learning about the role of loss. Look up other YouTubers, hear about their experiences – what kinds of losses they have on a day or a week.

Once you can accept loss as a contingent aspect of trading, you can become comfortable with it.

You can take your stop losses and stick around long enough to also return gains.

I wish you all the best of strength and luck in the markets! Take Care!