No matter how good you are as a trader, or how good your trading strategy is, sooner or later you will experience losing your trade. What separates experts from amateur traders is how well they can handle losses.
In this context, one of the most important hurdles for traders is learning to identify inevitable losses and costly preventable mistakes. This distinction is very important for building resilient trading mindsets and long-term success.
I’ve recorded it Podcasts On this very topic you can find here:
Listen in your browser: https://www.podbean.com/ew/pb-phppu-172f57c
Spotify: https://open.spotify.com/episode/60gdmfcgdm2uyffmkhddpe?si=s-rcelrria7lvvdq7mj0a
1. The nature of trading loss: good vs bad
Every trader faces losses – it’s simply part of the game. However, not all losses are equal. By distinguishing between “good loss” and “silly loss”, you can change how you perceive and learn from the set.
Good loss: part of the plan
If you adhere to your trading strategy and follow the rules, you will experience good losses, but the market situation will not like you. These losses are expected even with a solid trading system. Over time, these “good losses” do not hinder profitability, but are part of a larger and more successful approach.
Tip: If you’re new to trading, one of the best ways to get used to the inevitability of a good loss is to backtest your strategy. I spend several weekends collecting data from various markets. This practice reveals that you can lose 50% of your transactions and continue to make profits in the long term. This realization is eye-opening and gives you confidence in sticking to your strategy during difficult times.
Dam Loss: Cost of Error
A foolish loss is preventable and occurs when you deviate from your trading plan. These can result from emotional trading, coming in without a clear plan, or ignoring established risk management rules. Recognizing and minimizing these errors can help protect capital and take the path to steady growth.
2. Process-oriented thinking
Instead of assessing success purely by profits and losses, process-oriented traders measure performance by adhering to trading plans. Did you follow the entry and X strategy? Was your trade size and timing right? This perspective helps maintain consistency, improve your approach and avoid burnout.
I’ll reflect and review:Reflect on these questions after each transaction, especially those lost.
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Have you followed trading rules?
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Was the trade pre-planned or impulsive?
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Have you had any hidden effects like stress or market hype?
This reflexive practice helps you find patterns of behavior, such as overlooking (FOMO) and revenge trading, maintaining accountability and discipline.
3. Weekly improvements
One effective way to grow is to identify one important area for improvement each week. For example, if you notice that you have a habit of trading on trades when you’re bored, write it down and place a reminder next to the trading screen. Make your mission your next week’s mission yours so that you don’t repeat that action. Over time, these small, targeted adjustments can lead to great advancements.
4. Avoid any return goals
Setting strict financial goals such as “We need to create 10% this month” can put excessive pressure on us to force transactions that don’t suit the market situation. Unlike the 9-5 job, trading requires flexibility and adaptability. The market determines your opportunities, not your calendar.
Best Practices: Focus on getting quality trades rather than trying to achieve any goal. This reduces forced decisions and leaves them tailored to their strategy.
5. The value of stepping in
A common mistake among traders is the urge to always take part in trading, even without a solid setup. This often leads to unnecessary and impulsive transactions. Knowing when to go back and take a break is just as important as getting into trade. Breaks will help you clean your mind, reset your strategy and improve your discipline.
It’s time for sign breaks:
6. Recognise and mitigate excessive risks
Sometimes traders take a great risk due to overconfidence and desire to recover quickly from losses. This behavior can be destructive and counterproductive to long-term success. If you realize you are taking a greater risk than usual, pause and look back at the underlying motivations. Are you trying to “catch up” after a terrible streak or do you feel pressured by markets and social factors?
Coordination Strategy:
Practical takeaway for all traders
To summarize, here are six steps to integrate into today’s trading routine:
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Distinguish losses: Understand and accept “good losses”, but try to minimize stupid losses.
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Adopt a process-oriented approach: Focus on not only the outcome but also on successful implementation of the strategy.
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Please reflect regularly: Analyze trading journal transactions to find patterns and areas for improvement.
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Avoid strict profit targets: Take what the market offers and don’t force trading.
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Control external influences: Include only hints that match your strategy.
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Reduces excessive risk: Prepare a position size plan that shows how much risk there are for each trade.
