3 Simple Tips On How To Handle Losing Trades

Taking a loss is never nice and that losing feeling is only made worse if a small loss becomes a large one because of emotional trading behaviour.

Following are 3 simple tips that can help you overcome and learn to deal with losing trades that inevidibly happen when you trade.

  1. Accept that losing trades are the overhead that you must have to run your trading business.

Yes, you must have losses to win at the game of trading and we must learn to embrace them, you simply cannot trade the market and only have winning trades. Most traders accept that losing is part of the trading game however they still struggle to act in a consistent manner when they do experience a loss.

As a trader you biggest overhead is your losses. In fact, other than the brokerage trading losses are your only real overhead. In a traditional business you fully accept that overheads are a must. Staff wages, rent on your premises, stock and equipment, a website and many other smaller over heads that can add up. Let’s use a retail clothing  store as an example. The owner of the clothing store appreciates that there are some days of the week and seasons of the year they are going to potentially sell very little and perhaps nothing at all on some days. They understand their overhead is still going to need to be serviced over time even though they are selling very little or nothing today.  They understand the stores income must exceed the overhead to be profitable but there are many days the store makes a loss because of poor sales. One losing day does not stress the store owner. They still show up the next day and open the store again.

You need to look at your trading losses in a similar way. Just like the retail store you are going to have days, weeks or even months when your overhead exceeds your income. However so long as your overhead (losses) are consistently low and you never experience consistent major drawdowns you can relax and embrace your losses as part of the overhead you must have to run a successful trading business.

How I think personally. Whenever I take a trade I never expect it to win. I want to win but I don’t expect it. This keeps my expectations low, it ensures I manage my risk correctly. I never get overexcited about one trade. I know the damage one trade can do to my account.

  1. Don’t take losses personally.

You must never take trading losses personally because you do not have control over price direction and a trade does not work or fail because of something you did or the system you use. Anything can happen on one trade, an unexpected natural disaster could send the price to your stop loss in seconds and there is nothing you could have done about it. 

Trading losses can certainly be larger because of how you behave and if you have behaved poorly and made a loss larger then you should take it personally. However if you are consistently executing your edge with a sold risk and reward strategy then losing trades should never be taken personally.

The only way you can trade the markets and not take losses personally is by using strict risk management principles on every single trade and embrace that trading success happens over a series of trades and not one individual trade. One, two or even three winning trades does not mean you are destined for success, nor does one, two or three losing trades mean you are destined for failure.

How I think personally. This trade did not win or lose because of something I did. I simply followed my plan and so long as I continue to do so I will win bigger than I lose and that is all that matters.

  1. Detach yourself from the money.

If you can master detaching yourself from the value of money then you are destined for greatness as a trader. The reason why traders always make money on demo accounts is because they have total detachment from the money, there is no emotion and they simply take every trade because real money does not exist.

When you have a losing trade with a real account you will be consciously or sub consciously thinking about the value of the money you have lost. The very best traders are able to detach themselves from the money and they simply view every trade as a commodity. They embrace that risk is part of the game, losing trades are going to happen and taking trades is the business they are in. They accept the randomness of each single trade and therefore can detach themselves from the value of money. They could be trading worthless rocks from a river bed or a million dollars of real cash. The very best traders detach from the value and simply trade.

When you trade think of each trade as a commodity, something simple that just must happen so long as you are managing your risk appropriately you will eventually view each trade as less important than you do now. This mindset is critical for you to succeed long term.

How I think personally. This trade one trade is not important, win or loss. What is important is that I take the trade if it meets the plan. The trades that you think you should not take are the ones that you must.