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The second type of loss requires much more attention, introspection and brutal self-honesty.  Losses that result from ignoring your trading plan or other bad behavior is what we all need to minimize.  There should be no such thing as “learning to live with it” when it comes to the second type of loss as it does with the first kind of loss.  Instead, the objective here is to appreciate and understand the difference between these two types of losses and to not let your confidence get eroded in those instances when you traded your plan but a small loss resulted nevertheless. 

Allow yourself to accept the fact that even a great trading system will incur losses. Protect your self-confidence by understanding that the past cannot be changed. Stay focused, be proactive and look ahead so that you are able to approach the next trade in an unbiased manner.

If your loss is based on bad behavior, however, the ballgame is totally different. If you have a couple of consecutive trading losses based on an inability to follow your methodology, you then have to “take a time out”.  Stop trading and start exploring why you are losing your control. Don’t let it paralyze you, but instead turn to your written trading journal and consider paper trading until you regain your equilibrium and confidence. Don’t avoid the markets but spend a few days reflecting on your own trading discipline and reviewing the rules in your trading plan. Use this important time to unplug and forgive yourself.  No one is perfect. Recognize that on occasion you will become emotional and, hopefully, you’ll avoid the same mistake next time around. 

Trading is a journey. Don’t let anxiety ruin your experience or your profits. Whenever I book losses, I just consider it as tuition paid to Wall Street University.  It’s not that I’m stupid – I just need to pay for the privilege of learning a very important lesson. Historically, I pay tuition only once for any particular lesson. 

After all these years of trading, one piece of advice I’d offer my novice readers is to focus on the process. Don’t focus on the dollars and the results. Your performance will take care of itself if you can follow the game plan.

A few quick caveats:

1. There is no place for denial in successful investing.
2. Don’t blame your losses on bad luck or outside manipulators.  Accept the responsibility yourself.
3. Don’t be dependent upon trading for all your fulfillment and happiness.
4. Focus on opportunities, not on regrets.
5. Proper risk control and discipline is non-negotiable for every trade everyday.
6. Revenge trading – trying to make back a loss – carries with it far too much emotion and is always costly.
7. Poor money management skills are the number one reason that novice traders wash out.
8. Learn to recognize your impulsive state of mind and take action to stop it.

Even the best traders in the world book small losses on a regular basis.  If you manage your emotions with consistency and if you strive for a disciplined trading mindset, then you should have no problem surviving a string of bad trades and showing profits at the end of the year.

Bottomline:  I leave you with two comments – one made by an extraordinary coach and the other by an exceptional trader.

• “If you can’t accept losing, you can’t win”  -- Vince Lombardi
• “My plan of trading was sound enough and won oftener than it lost.  If I had stuck to it, I’d have been right perhaps as often as 7 out of 10 times.”  -- Jesse Livermor

Trade well; trade with discipline!
-- Gatis Roze