It’s Okay to Lose…Sometimes

08/10/2009 10:36 am EST

Focus: STRATEGIES

As I write this article, I think of the many traders out there in the world who can’t accept temporary defeat. There are so many new traders who enter the markets each and every day who will not allow loss.

My friends, I am here to tell you that it’s okay to lose…sometimes. Traders seem to run into problems when they have a few losses under their belt on any given day and they start placing trades all over the place trying to get their money back. This is where discipline is paramount. If you are not having a good day, just realize that it’s only one day. The last I checked, the markets will be open again tomorrow. Some of the best traders I know have losing days.

Over a five-day week, it’s possible for a great trader who earns a living from trading the stock market to have a losing day in the week. Here’s an example of the likely results you might see from a full-time trader on any given week:

Monday:  +$1800.00
Tuesday:  +$62.00
Wednesday:  ($-228.00)
Thursday: +$822.00
Friday: +$ 190.00

There you have it. Over $2500 in a given week and on two of the five days, the trader was better off not even bothering to show up and trade. The key is to keep your losing days small and let the winning days just happen. This can only occur when you stay objective and have discipline. This concept was one of the most encouraging things I heard when I was a new trader. No one ever told me that it was okay to lose at times. When I was down on the day, I traded twice as much just to try and get back to break-even. Although I sometimes did, more often I did not, and as a result, I encountered even greater losses by the end of the day.

The mindset of a trader has to be one of calmness. Watching money go down the drain is not a fun thing to have happen to you.  The self talk that happens when a trader is not profitable on any given day is incredible, except for traders who understand how we must roll with certain days. A typical day for a new trader may start off with excitement and enthusiasm and they may even feel butterflies running rampant in their bellies.

As a novice trader, you may find that the first trade does not go so well, and the second trade is even worse, so this time you don’t take your stop loss. Your inexperience says to you “Shoot, the stock is still going down; OK, I’ll buy more down here, and surely this will allow me to get out.”The market keeps falling, there is no bounce in site, and your capital is at zero. You know that you will get a margin call if you leave this open, but you take your chances hoping that you can get out within the five-day call. Your spouse notices a different attitude today as you worry about this stock coming back to break even. You can’t sleep, you toss and turn, and you can’t wait for the morning to arrive so you can get to your computer and check your stock in pre-market. The market opens and you get a bounce and take your profits just over break even. You are so happy now because you did not have to realize this loss. This situation occurs again and again until the market demands all of the profit, not only for this new trade, but for all of the others that you did not earn correctly. Oh, and by the way, the market wants penalties and interest as well. Does this sound familiar to anyone? Maybe you or someone you know?

My friends, stay disciplined and follow your trading plans. Don’t ever let the story mentioned above happen to you. If you allow it once, you will allow it again and again until the market will not let you play in this trading world ever again.

By Jeff Yates of Pristine.com

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