Before going back to technical analysis I think we need to talk about dealing with losses (and winnings). I believe I will come back to this topis over and over again. Investing, trading and even gambling is in big part a psychological game. Can you stay focused if you are losing money? Can you learn from losing money? Can you take it as a positive thing?
Many expert advise you to take your winnings and losses not as % or dollar amounts, but rather as points. You are collecting points in order to win the game. However, lets be honest for many of us this isn’t that easy. And losing is losing, independent if you are losing points or dollars. It’s the general idea – are you a good loser?
I have myself played poker – I’m pretty bad in it. But it has helped me to understand the psychological effect of losing and also winning. There are 3 things to consider
- All your moves need to be thought about
- All your moves need to be done calmly without too much adrelinaline
- All your winnings or losses need to teach you somethin
Poker is a game of statistics, first of all, when doing your decisions you need to consider the statistics available to you. What is the exact possibility that you will make your hand? All your moves, in order to be a winning player that is, need to be calculated. Even if you think you have a better hand than the other person or if you think the other person is bluffing, you need to calculate if putting him allin or just calling him is strategically good move – considering the amounts, your hand, the hand he might still make if he doesn’t have one yet, the % possibility that he is bluffing at all. You can’t just *think* you have a better hand – if you do that – this often makes you a loser in the hand.
And the same logic works with trading. All your moves need to be logical, made with precation taking all possibilities into consideration, making your possible losses the smallest possible.
And to do that you need to be calm. If you manage to make 10% on a trade, this is great! But avoid the adrenaline. This won’t help you, often it will just get you to do stupid things now that you think you can win! It’s the same with taking losses. Losing 10% on a trade might be terrible and you might want to buy something else right away to cut down on your daily losses. Calm down now, have a cigarette, go out. And start trading again once you’re ready to make a research, once you’re ready to trade with your head again, to make calculated decisions.
When you do win OR lose, instead of taking it as a sign of good or bad luck or just leaving it as it, now start analysing those trades. What made this trade win you money? What made this trade lose you money? How could you avoid this sort of loss in the future, what do you need to do differently? How could you repeat the same type of winning again, what did you do right this time?
Many people say that only losing might make you act wrong within the next few trades. I would say that also winning might often make you a loser in a next few trades. And I would really suggest everyone to think about it a bit.
And keep in mind – losing is not bad as long as you can learn from it. So from this perspective, losing is also an investment, investment that can pay off in the future, maybe in the near future.
Note: This article is meant for people who have already learned about trading – losing is never good for people who have no idea about how to trade or what they are doing.