LOSS is a massive part of trading

Trading Discussion
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Although i have read some good things pertaining to Loss in this forum I think the general view with regards to Loss here is totally unrealistic and a real hindrance to the progression of both beginner and intermediate traders. I trade what some “wise” people here call “noise”, yes i am a full-time daytrader I’m afraid haha, I could not swing trade or trend trade to save my life (slight exaggeration).

I’ve called this thread “LOSS is a massive part of trading”, and would be grateful if other experienced and profitable traders, although not necessarily “wise”, would chime in with their own experiences, viewpoints and opinions so that those who are not quite there yet get a more rounded and helpful view on Loss than they perhaps have at this time.

I will post 1 or 2 times per week so if you don’t get an immediate reply to a question or an observation don’t think that you are being ignored.

I want to start this thread not in the usual places, the technicals, the money management, the trading plan rules etc. but at the sharp end; or deep end if you prefer, on the operating table.

Scenario

It’s literally life or death for your account, the cluttered account graveyard will take your busted account and your; lets to add a some drama, broken dream. (Queue music)

You have lost way more than you should have, you have added to a losing position, doubled the trade size but price won’t turn it just keeps going.

AAAAAaaaahhhhhhhhhhh!!!

You’ve opened up trades on other pairs, thought it was worth a try, but it’s not helping, your available margin is low and your trade sizes are conservatively speaking: LARGE.

This is a very different space to where you were just a few hours ago. The “Ifs”, those thoughts which rattled in your head saying, “IF i had done this or IF I had done that I wouldn’t be in this mess”, are now completely gone.

Your mind is firmly fixed on getting back what you’ve lost so far today, on getting back to that oasis of break even and you have decided to do whatever it takes to get there!

In a position like the one above where your account may not survive the end of the day, where pressure is close to Max , where your brain is shutting out all of the information that the charts and your experience are screaming at you, where…

In such a situation how do you go into the Matrix, (more drama, perhaps overkill i know but does it have to be boring?), how do you click on the close positions button(s), log out of the platform guaranteeing that your account lives to see tomorrow and walk away?

In my next post… Is he even human? Thats disgusting! How did he cut loss like that, he didn’t even flinch?

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loss is an inevitable part of trading which cannot avoid in spite of having most powerful analyzing trade knowledge , so we have to remain cool when making loss , generally we traders lost temper and trade at random after making some losses. it always causes the reason to lost whole equity.

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after making losses trade over and over , its a beginners attitude.

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Hi Win!
I hope I am not breaking any etiquette here by “chiming in” here already? Especially as I do not fit the “wise” criterion mentioned above?

But I just wanted to add a thought on a terms “loss” and “trading” as in

In my opinion, this topic is all about “wrong turnings”.

And I think the most basic “wrong turning” is not understanding what retail trading is.

If you ask any trader what they trade they will usually instantly and confidently reply EU or GU or UJ or Oil or Indices or Crypto, etc. But these are all wrong answers. We do not trade these at all.

If we exclude options, then we all trade the same thing - probabilities, that is all. We take a risk exposure on the view that price is going to be somewhere else later compared with where it is when we take the trade. This mechanism is the same whatever instrument or time frame or strategy we utilise to create this risk exposure.

So the first “wrong turning” is to assume that when our trade loses, we got it wrong. Probability means something less than 100%. And less than 100% means a proportion of trades are going to be losses.

The next “wrong turning” is not understanding why we trade at all. The only sane explanation is the possibility of earning rewards sufficiently greater than those available in 100% investments to make the risk worthwhile. If one does not understand that higher opportunities also carries higher risks then one cannot understand that losses are just part of the process and not a mistake.

The next “wrong turning” is that if one cannot accept that losses are inevitable and only an overhead cost in the pursuit of greater gains, then they should put their funds into US govt securities instead.

So if we reach the point of accepting losses as being just as normal as gains, then we can be unemotional about them…or can we? Why do we then see revenge trading, etc? Here, I think, we find more “wrong turnings”

Let’s say we have a car with a full tank of fuel and we set out on a trip to a place where we really want to go. But we have no map and no navigator. But we have a good basic idea in which direction to set off.

So we travel along the road and all looks and feels good. But each time we come to a junction we have to decide, as best we can, on the indications available, which way to turn. We make our “best choice”.

But sometimes, inevitably, we take a “wrong turning” and we soon start to realise it. Each time we take a wrong turning we have three choices:

  1. turn back and try again (just lost a little fuel and time, that’s all)
  2. give up and go home (just lost a little fuel and time, and the chance to ever get to “the place”)

or thirdly:
3) Having already lost some fuel and time, we decide not to write it off and press on in the same direction on the hope that it will eventually get to “the place” even though there is no longer any basis for that assumption at all.

OK so sometimes option 3 just might actually get there, but more often and more likely we end up running out of fuel in the middle of nowhere. Was it the car’s fault? Was it the road’s fault? Was it the fuel’s fault?

So maybe option 2 was the best choice? Cut your losses and quit? Go home? Well, yes, obviously it is - unless “that place” is really worth the effort of finding your way through the maze.

But we knew even before we started that we would take some “wrong turnings”. It was the only way of finding the true route to our goal.

So the strategy changes. Instead of trying to eliminate “wrong turnings” and getting to “the place” with what a golfer would call a “hole in one”, we plan how to conserve our fuel and consume as little as possible on the “wrong turnings” in order to make it to “the place” where we want to be.

Naturally, in some cases, some start with so little fuel that it was never going to get them there anyway because of the inevitable “wrong turnings”.

Trading is not 100%, we all know that. So we also know that losses are real, present and inevitable. So we shouldn’t be fighting them, we just need to control them.

And when you know you control them, then you are no longer emotional about them. You accept that trading is about big steps forwards with some small step backwards. Just like life.

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Great analogy.

Trading is indeed not about being right and wrong, its about how much you have to spend to get there, its about being right enough and not wrong too much.

We are not back in the school-class, where mistakes are the most important thing about every piece of work you hand in, this is a business.

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mistake of course will happen , no way to avoid it. but if we do same mistake again and again there is no way to come out loss project , second mistake always our own choice.

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Yes! Yes! Yes! And what businesses do not have some kind of costs on the way to their profit. It is the same thing in trading - except we call them losses not overheads or costs.
Any business whose overheads consistently exceed profits will end up bankrupt. And every successful business manages and optimises their costs - not avoid them! Even minimising costs is not always the right answer in a business. :slightly_smiling_face:

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NeilKruger, Hadden, Manxx, Tommor, Peter Borren

Thanks guys for your early responses. You have already brought up some very important points which i hope we can discuss in more detail as the thread progresses and look forward to your contributions.

I deliberately chose to start at the sharp end and work backwards because as new or intermediate traders the scenario i described in my first post is a place in which WE find/have found ourselves with an alarming frequency.

I want to address those who are going through “I had £1000 now i have £300, yes i know XYZ i really do but its not helping me, I’ve just lost £700 this time.”

I plan to use rooms as a theme starting at the operating surgery which is pre-account graveyard and go backwards until i reach the calm of the mountain cabin with an expansive view of everything.

I hope we can discuss each room in depth and hopefully really help those who may be struggling currently, starting with their most immediate concerns.

Win

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you are most welcome.

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And in the meantime, if you get bored, take a look at one of @WinPsych’s earlier topics from 2014. I read it through once and am now reading it again - in my opinion, brilliant stuff… and as fresh today as it was then (even if I and even maybe @winpsych are not quite so! :joy: :joy: ):

Relaxing in the sunshine strategy

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Going back that far as a daytrader is like looking at a photo of yourself in the 80’s and trying to convince yourself that those clothes you were wearing and that hairstyle really were fashionable back then hahaha

I definitely second your future proposal of a 10 year trial period before publicly posting anything for public consumption. Just hope i didn’t contribute too much to the appalling retail success rate…sure i threw in a disclaimer somewhere.

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I think you people focus too much on losses. ‘Losses are inevitable, losses are a part of trading’. It’s all overkill. And it’s all BS. It’s not a ‘loss’.

Just look at it as a part of your system. If I ask you to draw a circle 10 times, you can even do it, you might make a mistake and it doesnt look right. But you wont care, you’ll just draw the next and next. That’s just like trading, you’re not right so move on. All this oh you lost, plays a trick on you that getting it right is a win. No, its not a win. You just drew the circle right. That’s it, now move on. All this focus on loss is a massive part of trading is just rubbish and not the right way to look at trading.

When you cross the road, sometimes there’s a car coming so you stop, that doesnt mean you lost time. Lol! You didnt win because you crossed the road. Just like that you dont win anything for trading your system. Just trade it as if you were crossing the road, sometimes you cross and other times you dont. In the end you’ll be profitable or not, you dont win or lose anything. Drop the win/lose attitude and you’re on your way to being successful. Threads like this really focus on the wrong things and breed bad psychological habits.

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Excellent point. Our real underlying asset is “odds”.

I am going to copy and use your very smart and catchy observation. Hope you don’t mind :sunglasses:

Thanks for the GREAT contribution.

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Brilliant. I love it! But curious as to why options are excluded from this postulation. Options add a time variable but we are still dealing with probabilities, no? What did I miss?

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The only reason i excluded options was because, as you say, they also include a time element. And time can be traded as well as just defining an expiry point.

This time element has a monetary value which is included in the option price. It is therefore possible to construct strategies combining short and long options, with or without an underlying position in the actual instrument, where the intention is to earn from the time decay component of the short options rather than from a directional move.

However even these constructions include some element of risk or effect from price movement but whereas the underlying movement part is also a probability, the time decay element is an inevitability.

I was just excluding time decay issues, since there are some smart people here, like you! :+1::wink:

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Hi @Rickster99
I fully agree with what you say and i think you will find that the aim of this thread is precisely that - to explain and demonstrate to primarily new traders that individual losses are inevitable and an integral component of trading. Just as overheads and costs are an integral part of any other type of business.

So i agree with you except, that is, for this bit

It is not talking about this that breeds the bad psychological habits. Those bad habits already exist and form in the newbie mind from their own experience. And that explains why any threads here dealing with “why do traders lose money” attract so much interest and tend to continue ad infinitum.

And it is a serious issue since around 80% of traders do lose money - that is a fact confirmed by the broker themselves. So the issue of losses is very, very serious!

People suffer from fears and phobias and misconceptions about all kinds of things. And the answer is not to just ignore it and hope it goes away, rather help comes from talking about it with the right people and remedying the underlying issue. (Whether we are the right people here is, of course, another issue! :wink:)

You are absolutely right that a trader should never be obsessed with losses. But losses are dangerous if not managed correctly, even fatal in some cases - as regularly evidenced in various journals on this forum.

The fact that many do not understand losses as you clearly do, ás an experienced trader, is surely good reason to explore the issue rather than ignore it?

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If you discount a book before its written is it any wonder that you miss whats inside?:joy::joy::rofl::rofl::rofl:

Patience.

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Exactly!

Not only do some people assume the direction of the thread before its written but they assume that everyone has the exact same amount of experience as they do, the exact same personality, the exact same abilities, capabilities and countless other “ilities”.

Comical:rofl::rofl::rofl::joy::joy::joy:

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Teaser:

A few years ago a scruffy Amreican college dropout with a passion for poker took an account of a few hundred dollars and in the space of 2 years ran it up to around $4million.

As it always does, variance inevitably kicked in (maths, statistics) and he went on the prerequisite losing streak. What happened next turned into a blood bath.

When interviewed years later he said that when he was down to his last $200K there was a pause, a quietness.

He said that in that moment the distance back to that $4million looked so great that all he could see and focus on was that distance, the $200K meant nothing.

He decided to play and to play big with what was left. In less than 2hrs the $200k was gone.

Looking back he said that $200k could have paid for my rent, food and other expenses for a year and i could have still had enough for a small poker stake to grind with. Instead I didn’t have a penny and didn’t even know where i was going to live.

The next post will be released Tomorrow before 6pm (UK), inspired by the story above it is entitled, “200 is plenty in the operating room”.

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its a nice message, really mistake actually is our choice

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