Trading Psychology: Taking a Loss The Right Way

Trading Psychology: Taking a Loss The Right Way


Losing correctly is key. Losing is an inevitable part of trading. What happens to a lot of new traders is they
look at losses as a negative. And what happens when you do that is you generally
switch strategies very quickly. Hop strategy to strategy without any luck. And the reason why there’s no luck is because
you’re not giving a strategy enough time to pan out and really master it because you’re
trying to avoid losses and no strategy’s going to avoid losses. So if every single strategy is going to incur
losses, you need to know how to lose correctly. The best traders take losses too, but they
do in a very particular way. When a trade goes against them, most people
have the instinct of cutting it loose immediately. Pro traders allow time for their initial plan
to pan out. Now, we talked about this in the earlier videos. When you have a systematic approach, you have
a plan. Part of your plan should be your exit in case
the stock goes against you. And that’s going to be your stop loss. One thing that pro traders do is they don’t
interfere with that trade unless it hits that stop loss, where a lot of new traders will
see the trade going against them and cut it and loose without sticking to their original
plan. So it’s very important to have a plan and
stick to that plan. The less interaction that you have with that
trade, most likely, the better off that trade is going to be. The only thing you can do is react out of
emotions. Moment by moment changes in a stock’s direction
is a highly unpredictable. Short term ticks are very, very hard to time,
whereas longterm trends are much easier to define and follow. You also need to learn to accept what’s uncomfortable
for the time in order to achieve a much greater gain. Now, what do we mean by this? Remember, you’re always going to have your
plan. If you’re up 20% in the trades now, coming
back in 3%, it’s going to be very uncomfortable to watch your profits disappear. But you have to look at the big picture and
you have to understand that there’s going to be tons of red days over the course of
the longterm trend that you are looking to ride. The key takeaway is to have a plan and stick
with your plan. Don’t interfere with your trade in the middle
of your plan. And understand that losing is something that
you have to get good at and do properly. The less you interfere with your trades, the
better they’re going to be. More trading does not mean more profits, more
involvement does not mean more profits, and we’re going to cover that in the next video.

One Comments

  • Bill D

    November 7, 2019

    i liked the video except i was confused by u saying pro traders cut their losses quickly when a trade goes against them and dont wait for their initial plan to pan out….but then you said its best if you dont interfere with your plan and instead stick to your plan/stop loss.

    Reply

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