I wrote a poem about Losses,
check it out below.
Okay that is a pretty crappy poem but in my defense, I never said I am poetic; “ShortMeTina” trades.
But let’s get back to the concept of “losses”. It is in my opinion that the discussion should be as brief and straightforward as my poem when it comes to losses.
You will experience them at some point in the markets. It’s a part of the course; and I usually tell new traders, if you can’t accept a loss trading, then you probably should stick your money in a bank. Banks are “extremely safe” and along with that, you will get your subpar .25% return on your money annually.
However, if you want to trade the markets, understand that more often than not, you will have to take a loss on an investment. Have you ever read the disclaimer or safe harbor statement on any prospectus? They all say something to the effect of, “ALL investments carry risk….”. There’s a reason they say this. They say this because they know that investments are risky, and more than likely will lose money at some point.
But taking a loss from time to time on individual investments does not mean your overall bottom line will be negative.
And there lies the oxymoron of investing. In order to succeed, one must be comfortable with taking a loss. The best of the best in the field are right on trades less than 50% of the time but make millions and billions of dollars on an annual basis.
I am not saying you will make millions, although it is my hope that you do. What I am saying is, you can take losses from time to time and still have a net positive at the end of the year. How so?
“By ensuring your losses are smaller than your winners”.
In essence, when you lose, the loss shouldn’t be on a large scale (relative to your account). If you keep them on a small scale, while ensuring you’re maximizing your winners, you will get out ahead.
Unfortunately, for whatever reason, a lot of new traders hold on to those losses (no matter how big they get) and bail at the first sign of a small gain. This is a recipe for disaster.
Big losses and small wins, will net you losses at the end of the year.
So going forward; understand that being wrong on a trade isn’t uncommon but staying wrong-like one of the best indicated-that is what does “damage to the soul” and wallet!
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