How to be a good loser

I hate it when my trades lose. It makes me doubt my trading ability. And, given that any trading method (even the best ones) will lose A LOT (often 50% of the time, and still be profitable) – that can leave me spending way too much of my time feeling really crappy about my trading.

So, given that around 50% of my time is spent losing … it’s about time I got really good at it!

When it comes to trading, there are two equally important sides to being a good loser …

1. The first is to roll with the punches, and not to have an emotional response

• It’s all very well to tell ourselves not to be ‘emotional’ about something, but we’re all human, and life would be very dull if we could just switch off our emotions. The best we can do is to remind ourselves that all trading involves losses, and to recognize when our emotions are getting the better of us. It’s too easy to fall into the trap of blaming ourselves for what’s a natural part of trading, or to slip into ‘revenge trading’, where you’re chasing after losses. Try to spot the warning signs.

• Did you follow your rules? If not, why not? This isn’t about beating ourselves up – it’s about identifying where we went wrong so we can avoid repeating the mistake.

• Update your trading journal – this is a good way to put losses into context. How bad was this compared to other losses you’ve had? What’s your drawdown? How does that compare to previous drawdowns?

• Stop. Try to avoid losing more on worst days than you’d make on your best days – we can do this by using a daily drawdown limit. If this gets hit, we stop trading for the day.

• If your confidence has been knocked, don’t be afraid to take a step back. Don’t stop trading altogether, but switch to demo mode or lower stakes until you’re feeling back into your stride. Yes, this means you’ll regain those losses more slowly, but this is much better than trying to chase those loses.

2. The second side to being a good loser is to be so good at losing that you can walk away from losses with barely a scratch on you.

This side to losing is built into your trading strategy … it’s about managing your risk well, before you enter the trade … entering in the safest way … and knowing when to close.

• When entering a trade, listen to your gut feelings. I’m not telling you trade emotionally here, but to be aware. Often, when following trading rules to the letter, there are trades I really like … and ones that I don’t like the look of, but enter because my rules tell me to. That’s normal – but by making a note in my trading journal of the trades I don’t like, I sometimes spot patterns (over time), and can improve my trading rules.

• Don’t rely on a stop loss alone to get you out of a trade. You might be risking, say, £200 on a trade, but that doesn’t mean you always lose £200 on a failed set-up. Build in safety vales that can get you out early. These could be time limits … trailing stops … a drop-off in momentum … external factors like data releases. You can find more ideas on exit indicators by clicking here.

• Most traders are guilty of leaving losses to run too long and of taking profits too soon. Set yourself strict rules for when to close a loss – and stick to them.

• Don’t be afraid to close for a small loss, but to then get back into the same market on a fresh signal.

In trading, we will lose. And we’ll lose often. So we want to ensure we lose SMALL. Success is all about getting that balance between risk-reward and success rate. So, every extra penny you save in a losing trade is another small notch of improvement in your risk-reward profile. Don’t underestimate the effect those marginal gains can make when it comes to long-term profitability.

 

 

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