Does calling a loss a loss affect your mental fortitude for the next trade?
I know we should consider trading like a business. There are costs involved.
Would calling losses “expenses” help take the next trade?
Trading has the same principles of business, that is, gross income, expenses, leading to a net profit margin over time, etc.
In trading we set our total expense on a trade, and see how much profit we can make for the cost we are willing to pay for.
How do you deal with trading “expenses”?
Am I running around the issue, and just call it for what it is, a loss?
Loss is too negative. It sounds like a defeat, like the trader performed poorly, like the trader was careless or made an error.
Often none of these things are true. Its like when a trader takes a trade in a given direction and price goes in the opposite direction, the trader will often say or assume they were wrong about the direction. In fact, being right or wrong about the direction is not the key question: the key is whether or not to take a trade according to a certain plan, procedure or strategy. In that case, the only way the trader is “wrong” would be either if they didn’t take a trade when their strategy said they should or if they disobeyed the rules of the strategy.
I think it may depend on people’s preference really. Like if you lose a trade then you can also win a trade, same as if you call it expenses then vice versa it profit.
For me personally, i have no problem with calling it a loss as i know that i made a mistake so my trade lose. The more important thing in my opinion would be how do you handle your trading losses rather than just going around them. For example, taking a break if you are only a losing streak, keeping a trading journal to monitor your trading performance … etc.
After a loss, most traders are motivated to return to the markets right away.
This is a bad concept.
Every every trade you make after a loss – especially one that makes a significant dent in your equity – will be an emotion-driven revenge trade designed to make up for your losses.
Emotionally agitated traders are easy prey for sharks. Turn off the computer and go for a walk after such a setback. Go outside and let out the emotional energy that’s been building up inside of you. Don’t put any more money down until you figure out why you lost.
This is so true.
It’s almost as if by taking another trade is a way of trying to fix the loss, or correcting what is perceived to be an error, when it could just be one of those things.
Setting yourself a max accumulated loss per day, or session, and sticking to it might also work.
I am looking to switch charts to another fresh chart, a different FX pair if I take a loss on one.
Personally the language used isn’t something I dwell on too much but can see how using “expense” can be a more accurate description. I prefer to focus on the circumstance of the result. Was it a good trade that just lost in which case it happens, or was it poor execution on my part or not sticking to my rules that meant it was a FOMO trade.
The language of calling a failed trade a “loss”, or even “failed” certainly didn’t apply to what I did today.
I went long GBP/JPY this morning. Price reversed sharply at midday due to an unexpected interest rate increase by the Bank England. I exited the trade about 10 minutes later but suffered no loss due to hedging short positions in place. Not a failure and certainly not a loss.
I think it’s different things though isn’t it. You can have a good trade lose, a bad trade win, and also both break even. As I say most probably get to a point where the language used is inconsequential to their feelings about a situation. The situation just “is” and you move on regardless.
“There’s a difference between knowing you’re going to have losses and accepting that you’re going to have losses”
It sounds a bit silly but it rang true for me. I think that once you accept losses are part of the process then it doesn’t really matter what you call them.
When traders get bad news about a certain stock or about the economy in general, they naturally get scared. They may overreact and feel compelled to liquidate their holdings and sit on the cash, refraining from taking any more risks. If they do, they may avoid certain losses but may also miss out on some gains.
By thinking it through ahead of time, traders will know how they perceive events instinctively and react to them, and can move past the emotional response. Of course, this is not easy, but it’s necessary to the health of an investor’s portfolio, not to mention the investor.
The attitude towards losses should be optimistic. This attitude changes the emotional reaction towards losses.
Traders should learn from their mistakes and not repeat them in their future trades.
Concept of losses should be clear before a trader starts to trade. He must accept his losses and analyse his trading mistakes rather than filling the mind with pessimistic thoughts.
According to me, the word “loss” is far too depressing. It sounds as if the trader did not perform well, or is neglectful to make mistakes. I believe that words play a very important role in trading psychology. Instead of saying failure or loss, you can say that you need to improve and learn more, in this way you will stay motivated and will perform really well throughout your trading journey.
Failing at trading and making a loss are two different things. A losing trader can turn the table any time and become a profitable trader. But a failed trader has had enough of the losses and is in no mood of taking more. He will probably leave trading once and for all.