Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
How to Lose Properly
08/31/2009 10:47 am EST
There is no opportunity without risk, and thus, learning to truly accept risk is the first step to trading freedom. We teach that once we are in a trade, we employ “trade management” strategies for purposes of taking profits or protective stops. Trading involves speculation, which, by definition, involves risk, and therefore, accepting loss is a necessary part of trading.
Our objective is to help you approach the market in a disciplined, objective approach, with a high focus on managing risks (and loss) in order to help you overcome the tremendous hurdles during your quest to become a profitable, self-directed trader. A trader refusing to accept loss is as ridiculous as a pilot not accepting turbulence during flight, and that trader should consider not trading.
Any winning strategy necessitates the ability to lose properly. It is the capability to deal with, and “make good” of one’s losses that enables winning traders to keep a positive mental attitude. It also enables them to progress and effectively maintain their winning ways.
Losing properly is not easy, and therefore, requires great skill. You need to be able to learn from your mistakes. Ask yourself if the trade actually met the criteria of your trading plan. If it did, then could you have averted the loss, or was it a good setup that was consistent with your strategies? If you made an error in judgment, make sure that you learn from it.
The discipline involved with losing properly has to do with taking the loss at the right time. Did you sell at an intelligent time, with your stop placed just beneath support? Or, did you not take your intelligently placed stop and sell at a lower price than you should have? Discipline is also necessary when preparing for the potential loss. Make sure that your stop allows for a level of risk that you can stomach, and is compatible with your strategy. This will help you to be comfortable with losing properly.
Seasoning has much to do with maintaining a positive mental attitude. Seasoned traders do not let their losses get them down. They understand that the loss may actually be a “friend,” as it creates an opportunity to learn from. They apply the knowledge and use it to improve their trading and maintain a winning attitude while accepting and brushing off the loss.
By Kurt Capra of Pristine.com
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