Learning To LOVE (accept) Your Losers

Ok, so no trader truly enjoys taking a losing trade. But if you want to succeed in this business of day trading, learning to love your losers (or at least accepting them) is one of the most important lessons you can learn. Psychologically, human beings are not well designed for trading financial markets. We hate losing, we hate being wrong, and we get buffeted about by those twin emotions - fear and greed. This leads us into all sorts of self destructive habits. Moving stop losses further out - just to give the trade time to turn round. Or grabbing a profit as soon as it appears - just in case we have to give it back.

The simple fact is that most successful traders lose as many, more likely more, trades as they win. What separates them from the rest is their ability to cut a losing position and run a winner for as long as possible. The arithmetic is simple. If your average winner is twice the size of your average loser, then you can be wrong on 50% of your trades and still make very good money.

In fact, you can be wrong 66% of the time and still break even. Improve the ratio by more than two to one and you can make massive amounts of money in the markets. Unless you can learn the art of letting winners run and cutting your losers short, you will never get those big winners that make the difference, and you will never reach that magical relationship where your average win is at least twice as big as your average loss. This fundamental concept holds true no matter what time frame you trade and whether you’re a day trader, swing trader, or even if hold your trades for over a year.

The key to reaching this state of affairs is to develop or adopt a high probability trading system and stick to it. The more you can automate the trading process, the less likely you will fall into bad habits. This will take the psychological problems away and allow you to be less controlled by your emotions.

So don’t be afraid of losing trades. They are part and parcel of this business. Learn techniques that will allow you to minimize and control them and the profitability of your trading will improve more than you can imagine. Fail to master this concept and you set yourself up for disappointment and frustration.

Of course, getting the mental bit right is only part of the answer. There is a plethora of moving parts when it comes to trading. Learning how to pick good trades, understanding entry and exit signals, and spotting when a move is coming to an end are vitally important, too.


About the Author:

Leroy Rushing is an active, professional day trader; trading coach; and eBook author. He is the Founder and CEO of Trading EveryDay, a distinguished provider of educational trading products and services that are available worldwide.

A Trader Stops Fighting...and Stops Trading

New York

November 28, 1940

A sixty-three year old man walked into the art deco styled Squibb Building on 745 Fifth Street in New York City. The building was ten years old and the home of the Sherry-Netherland Hotel. It was a building of style that proudly stretched thirty-four stories high in prominence.

It was 4:30 in the afternoon on November 28, 1940 when he walked into the spacious vestibule that displayed it’s simplicity with abundant glass, directing his attention to the bright main lobby. The murals, which depicted Manhattan, adorned the ceiling in the lobby, but today he didn’t notice.

He found his way into the cloak room and took a seat near the back. With his right hand he pulled out a .35 caliber Colt pistol and placed it behind his right ear as he clutched the small leather bound memo book in his coat with his left.

He pulled the trigger.

In the leather bound memo book the police found a suicide note. It was a letter to Jesse’s dear wife Nina. In it he wrote:

“I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure.”

Jesse Livermore died that day. He was a renowned stock and commodity trader and was also known as the Boy Plunger. He was a trader from the age of fourteen until he ended his life and was famed for making millions and losing it too. It was the bear markets of 1907 and 1929, that he made most of his fortune selling short the market and hence begot his nickname.

Jesse Livermore stopped fighting that day.

Today, there are more traders then ever before in history. They wake up everyday to evaluate the world and predict the market direction; profit is the motive and the prize they all grasp for is riches

However, trading is combat and if you don’t like to fight…don’t trade.

Jesse chose not to fight anymore… he stopped trading that day.