The Reality of Losing
One truism that you had better expect in trading is that the more you trade the more you are going to lose. I love saying that in front of a class because I can tell by the different reactions as to where people are on the trading curve. The old timers always chuckle knowingly, while the newbies take on a somewhat unsettled look. Yes, it is true that if you have a proper method and mind-set that the more you trade the more you will win also. But it is an individual’s reaction to losing that is the most telling to me.
I have actually had people try to argue with me that they feel that they can avoid losers. Hedging aside, if they are still around a couple of months later they usually pony up that they were wrong, and their journey would have been a lot easier if they would have mentally accepted that losing is a part of trading.
I have a good friend who believes that the majority of people actually make money when the market is trending, but give that back and then some when the market is not trending. As we know, the market moves sideways with not much of a discernable trend more times than not. My friend, Kelly is a smart trader, and is convinced that if he avoids the “wash cycle” of non-trending markets and remains patient and diligent in pursuit of only those set-ups which he deems higher probability, along w/ favorable risk/reward ratios that he will remain on track.
My own mentor, Al, seemingly has no fear of losing. In fact he thinks it’s a bit of a warning sign if the trader’s winning percentage is too high. “Their cherry pickin’”, he says, which means they’re passing up too many trades. By taking more trades, they should, professional standards withstanding, make more money. Traders like Al, and Bill Williams, understand that 80% of their profits are going to come from 20% of thier trades, with the other 80% of the trades essentially ending up collectively as ideally a small gain. If a trader starts “cherry pickin” in an effort to avoid losers he’s likely going to miss some of those big winners that account for the bulk of his profits.
We all need to keep in mind that there is nothing wrong with small losses as they are a legitimate expense in trading.
Jay Norris