Learning to Expect Losses

There have been plenty of times during my trading career that I had to come from behind to turn a sure-loser into a winning trade. Believe me, trading can be pretty scary at times. However, sometimes you simply have to eat the loss and accept a fall. It is at that time you find out whether or not you can make it as a trader.

Despite my best efforts, I sometimes find it hard to pick myself up after a fall. You've heard it before, and sometimes it is said in really stupid ways: Traders must learn to expect losses. I even read once that traders have to learn to love losses. Losing is not something I ever want to learn to love.

Learning to expect losses is often easier said than done. Even if you are a seasoned trader, and have complete confidence in yourself and your approach to trading, it is not easy to take a severe drawdown in stride, keep trading, and win back what you've lost.

If you're a beginner, a severe drawdown probably reflects a lack of trading skills — but if you are not a beginner, more than likely you have done something really foolish. You've messed up somehow, and you now find yourself facing a devastating loss. It happens to the best of us. You have my word on that.

There may be an element of truth in it when a novice trader tells himself or herself, "I don't have the skills to trade profitably and I should just give up." It is hard to pick yourself up after a severe fall because, in the back of your mind, you think your fears may be legitimate. You haven't yet acquired the confidence in yourself and in how you trade to be sure that you know what you are doing. In the end, however, such a negative view of your trading is not going to allow you to achieve the financial success you hope for.

The only way I know of to become a consistently winning trader is to keep trading, so that you can get the extensive experience you need to make it as a trader.

Again, that is a lot easier said than done. When the market is kicking you in the teeth, it is really hard to hang in and keep on trading, and you won't be able to keep on trading when you feel paralyzed after a setback. Thankfully, there are some things you can do to pick yourself up and keep going.

From my own experience I can tell you that after I've taken a severe hit, it's hard not to feel extremely disappointed. Mostly, I am disappointed in my performance. Just as with anyone else, I experience times when I feel insecure to some extent, and a major letdown brings out this sense of personal inadequacy. As I tell attendees at seminars and in private tutoring, I still have to put my pants on one leg at a time, the same as they do. My mind is wired just as is yours — a loss brings to mind linked memories. A bad trade brings with it a bad memory, which in turn brings yet another bad memory. I find myself saying, "Oh no! I screwed up again. When will I ever learn?" If you allow it, you can find yourself in a vicious circle; one failure brings to mind another, and then another, all of which serve to intensify your disappointment. You've got to break the circle before it intensifies, but how?

There are two ways to stop the vicious circle from turning a minor setback into a major disappointment:

1. Make and keep a list of great wins you've made as a trader, especially those where you came back from behind. When you face a disappointing trade, you can read through the list to remind yourself of the times you have succeeded. This list of memories of successes will counteract your tendency to recall past failures. When you recount your past triumphs, your mood will turn from pessimism to optimism.

2. You must deal with the possibility that you may, deep down, really believe that you can never become a profitable trader. Obviously, such a belief isn't going to help you persist after a setback, even though there might be some truth in it. If you merely try to deny the belief and block it out of your consciousness, it may have a more powerful adverse influence on your motivation. The best way to neutralize this thought is to acknowledge it, and refute it.

Keep in mind that with persistence you will gain the experience you need to trade consistently and profitably. Remembering and concentrating on this fact will powerfully influence your ability to recover from a setback.

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Master Trader Joe Ross wants you to learn trading and he created products to do just that, teach you how to trade. Go to our website to find which ones best fit your trading style.