Taking losers... This was written from a short term trading perspective long ago. It assumes discretionary trading is taking place, but now, I would simply say: Back-test a plan and only trade it if it the data gives you a long term positive expectancy. Some of this logic would still apply, but a plan should be followed meticulously, otherwise the data is invalidated and so is your expectancy. I don't think I ever posted it so here goes.
When you buy clothes for work, should you feel like it was a waste of money? No, because its that purchase that allows you to dress properly so you can perform your job and get paid.
When a business owner buys materials for their business, should they feel like it was money down the drain? Of course not. Without raw materials, a business cannot make products to sell and produce a profit.
So then why when trading, do we fear loss of capital so badly? It is because we fail to see that loss for what it truly is. It is a counter-intuitive principal that must be understood. When the entire purpose of trading is to make money, it feels completely against the point to lose money doesn't it?
You must come to understand that losing trades are an unavoidable cost of doing business. You must view the losing trade as the one and only way to make yourself available for the opportunity to make money in the long run.
As with any business, there is overhead and the less overhead a business has to pay out the more profitable that business can be. In trading the overhead of a losing trade is unavoidable. There is no magic way to never lose in trading, without doing something illegal.
In most businesses monthly rent must be paid to keep the opportunity to welcome customers... In trading, losses are like the rent. It is the risk you must take to attract the paying customers.
In the business of trading, you employ a method of your choosing to extract money from the market. Every method will experience both winning and losing trades, but the only way to have success with any one method is to make sure that over time your average dollars won outweighs your average dollars lost.
It sounds very simple, and it is, but how do you know that your method is able to do this? Back testing. Back testing is the process of using past market data to apply your methodology and obtain performance data.
Through a large sample size of trades you will then have the data to determine very specifically your winning percentage, losing percentage, average size winner and average size loser.
When you run those numbers you will then find what kind of performance your system is likely to experience in the future. Note that I said "Likely". The past is never guaranteed to repeat itself into the future exactly, so at best we have an insight as to how any particular method might perform. The more trades you produce through as many different market conditions you can test them through, the more accurate your data will be.
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As in any business we hope to make the most money possible as fast as possible, but what happens in the real world when an item is not selling? What is the market telling us?
"The price is too high" or "I don't agree with your valuation".
In the real world, if an item isn't selling (considering it is of quality) the price is lowered to entice sales so that a profit can still be made (
or as little loss as possible) rather than it sitting on shelves and making a total loss.
In trading, we have to listen to what the market is telling us very closely. When we set out to trade, we can often have a goal in mind of a certain percentage or dollar value we would like to see out of that trade. If we have taken some losses that day, the natural tendency can be to expect making it all back in the following trade so that our goal is met for the day/week.
We must keep in mind that the market is unaware of our goals, Unaware of our previous losses, and even if it were aware, would not care.
Just like the store owner who may have overpaid for a shipment of a certain item for any number of reasons, the market will only bear the price it is willing to bear. If the store owner must sell his product at a 10% premium than normal to make a profit, there is a likelihood that shoppers will not buy it at all! They are not concerned with the sellers cost, they are concerned with getting the best deal.
How does this apply to trading? When you are down a few bad trades and hoping to make it all back and then some on the next trade, the market might have other plans that don't consider your unfortunate position. You don't want to get caught holding on to a winning trade beyond what the market is willing to give you.
"How do I know what the market is willing to give me?"
The truth is You don't. At least not until after the fact. But, just as back testing can produce evidence of a particular future outcome (average winning trade size) you must realize that the market itself is a dynamic flowing picture of the present mind of consumers and very recent movements can indicate movements in the very near future. When a recent price hits a price level and starts to drop, that is immediate feedback that the collective mind thought that price was too high for the immediate moment.
Depending on which time frame you are going to trade from, the "immediate moment" can be gauged from other very recent moments, or moments from years ago... it all depends on where the collective focus is at. And by collective focus, I mean collective dollars, because in this business the money is what moves prices, not necessarily the most people.
So if you are an intra-day trader looking for a few pips, it is best for your targets to be based on movements within the realm of a normal day. Keep the dreams of hitting the home runs at bay, as they can cause you to miss out on the singles!
If you have taken two 5-pip losers, you now need 10 pips to get back to break even. Lets imagine that price most recently hit a high that was only 7 pips away and you are in a long trade now and You've just made up for the spread.
Does the market know you are down 10 pips?
No.
Does the most recent market picture tell you that price was "Too high" 7 pips higher than it is now?
Yes.
The most productive course of action might be to simply take your profit 6.5 to 7 pips from where it currently is and bank a profit when that price level is hit again. Now, depending on how significant that price level is, the market will have varying probabilities of reaction upon reaching that price point again.
One other option, if you feel that price could actually break that recent high, is to take profits from a portion of your position when the high is reached. If the market does break that high and continue higher, you will still be in the trade and can manage it further. If the market happens to turn from that high, you made some profit and could have protected your gains by moving your stop loss to your original entry price or perhaps a pip or two higher.
just as letting go of a loser immediately is important to do, there are situations when in a profit that you must exit quickly as well. Imagine you are just entered the trade... is the market retracing quickly against you? GET OUT! If you are in a profit it may be time to treat it as if you had just entered. The price action is the price action and the market is not aware nor does it care about your entry!
If you get in and it moves in your favor, stay in until it stops. if it reverses get out!
Showing posts with label losing trades. Show all posts
Showing posts with label losing trades. Show all posts
Friday, November 20, 2015
Friday, March 27, 2015
...and how to subsequently lose $3,620
Yep, you read right haha. So here's some charts and my explanation!
Edit: I made a mistake. I would not have lost on the short, but been profitable. So a net profit of $380
So after all those charts I want to describe to you the thoughts in my head during all of this. For one, I have done a pretty good job reminding myself that even though this is not real money, that I should treat it as such so it might as well be. In that regard I failed miserably to cut that last loss quickly. I was also trading too large to begin with. And to say something that is easily seen as a means to rationalize this behavior away, I've been depressed the last few days. I have to say though, as tempting as it is to fall back on that, it's no excuse and professionals do not trade like this. Well... from time to time even the professional, seasoned veterans slip up like this, but it is still no excuse for me to do it.
There was a clear moment that I recall telling myself, "You should not be trying to go long this, just get out and reverse! Set up the robot, lower your size and calm down so you can either lose very small or win small."
As convincing as that downward wedge was, it was a violation of my own rules to hold a loser of that size for that long. The initial peak drawdown was slightly over 10%... And every time it came back down to that bottom and became only a 2.5% loss I kept feeling like it was inevitably going to break down and score me a profit.
The thing is, at that point, even it it tore past my profit target I knew I would have to report this shit behavior as a bad trade. I put my self at risk, I put my account at risk and that is something idiots do.
As time crept along like a snail it was really bothering me. I kept telling myself I knew I should just take the loss and get it over with, but I was stubborn. That stubbornness cost much more than I wanted to see. It made the $250 loss seem like an incredible bargain.. and the key point to ponder and drill into my skull, is that it was a bargain.
It's important to view every small loss as a bargain, not a wasted opportunity. Yes, there is such a thing as death by a thousand cuts where you are just taking loss after meaningless loss, but the key is to stop taking meaningless losses also,which ultimately gets back to another guideline I have not been following: Only trade the news and when the market is rocketing in a direction with momentum.
Because I am still not home everyday, it causes me to only be able to trade the market live on whatever day I happen to be home, which is almost never the really volatile days. One thing I do need to set forth now and make clear, is that besides my main goal of only trading the 2 or 3 largest events each month, there is price actions and chart setups that are worthy of trading.
The main issue with what happened here, is that because of the size I was trading I looked at the dollar amounts and was really reluctant to take the loss... Even though the reality is, that trading at $40 a pip, a $200 loss is only 5 measly pips.... I could totally get that back, but $200 seemed like a lot of work to get back because I was focused on the dollar amount, not the actual increment of market movement.
Had I actually been trading at the usual $1 per pip, I would have let that loser go very easily. The larger you trade, the more accurate you must be with your entries and exits. The quicker you must cut your losses, because if the market moves violently against you it is eating up your account far far quicker. In my case 40 times quicker than usual. The 36% loss I took would have been less than 1%... how crazy is that.
So, as the day went on I felt pretty damn stupid. Stupid because I did not do what I knew I should have done, but at the same time I was confident I would not have traded that large to begin with if it were real money let alone hold a loser like that. A large part of that stupid feeling I had, was knowing I had to report it here on this blog, even knowing that part of the reason I let it happen was out of this pure video game "nothings really at stake" mentality. It's honestly the first time since I've started this that I have let myself feel that way about any of this. The other crap results in the previous months were testing. This wasn't testing, it was not giving a fuck and walking away because I didn't want to take a loser and have to build that money back up again... (even though if I wanted to I could just click a few buttons and add it all back anyhow)
But the next day, after I had taken the loser and felt even stupider... I looked at the chart again and sure enough the market had made all the losses up and then surpassed the drawdown by a significant amount. For some reason, I smiled and the stupid feeling had left me. I felt renewed and somehow optimistic, but not because I was somehow proven right. In all honesty, I wasn't proven right... Being right is going short because you think the market is going to drop right then, and it drops right then. I was dead wrong, so why was I happy?
In totality I don't know. And in time with enough thought I will hopefully come to know. But I think part of it had to do with going through that trial and stress, and actually feeling like lessons were reinforced in a way I benefited from immensely. I think it is from admitting to myself and to you, that I fucked up. No secret shame to hide, just transparency. I think part of it is also from the gut that told me not to be trying to do the things I did after the market proved to me immediately that I was wrong. my gut was right, but I was stubborn and greedy.
So, I honestly look forward to the next time I trade, whether it be at the appropriate time or not. I want to do it right, whether I profit or not. This doesn't have to be the end of my confidence, especially because it was outside my rules to begin with and that is what I should expect to happen. that is the purpose behind the rules to begin with.
So after all those charts I want to describe to you the thoughts in my head during all of this. For one, I have done a pretty good job reminding myself that even though this is not real money, that I should treat it as such so it might as well be. In that regard I failed miserably to cut that last loss quickly. I was also trading too large to begin with. And to say something that is easily seen as a means to rationalize this behavior away, I've been depressed the last few days. I have to say though, as tempting as it is to fall back on that, it's no excuse and professionals do not trade like this. Well... from time to time even the professional, seasoned veterans slip up like this, but it is still no excuse for me to do it.
There was a clear moment that I recall telling myself, "You should not be trying to go long this, just get out and reverse! Set up the robot, lower your size and calm down so you can either lose very small or win small."
As convincing as that downward wedge was, it was a violation of my own rules to hold a loser of that size for that long. The initial peak drawdown was slightly over 10%... And every time it came back down to that bottom and became only a 2.5% loss I kept feeling like it was inevitably going to break down and score me a profit.
The thing is, at that point, even it it tore past my profit target I knew I would have to report this shit behavior as a bad trade. I put my self at risk, I put my account at risk and that is something idiots do.
As time crept along like a snail it was really bothering me. I kept telling myself I knew I should just take the loss and get it over with, but I was stubborn. That stubbornness cost much more than I wanted to see. It made the $250 loss seem like an incredible bargain.. and the key point to ponder and drill into my skull, is that it was a bargain.
It's important to view every small loss as a bargain, not a wasted opportunity. Yes, there is such a thing as death by a thousand cuts where you are just taking loss after meaningless loss, but the key is to stop taking meaningless losses also,which ultimately gets back to another guideline I have not been following: Only trade the news and when the market is rocketing in a direction with momentum.
Because I am still not home everyday, it causes me to only be able to trade the market live on whatever day I happen to be home, which is almost never the really volatile days. One thing I do need to set forth now and make clear, is that besides my main goal of only trading the 2 or 3 largest events each month, there is price actions and chart setups that are worthy of trading.
The main issue with what happened here, is that because of the size I was trading I looked at the dollar amounts and was really reluctant to take the loss... Even though the reality is, that trading at $40 a pip, a $200 loss is only 5 measly pips.... I could totally get that back, but $200 seemed like a lot of work to get back because I was focused on the dollar amount, not the actual increment of market movement.
Had I actually been trading at the usual $1 per pip, I would have let that loser go very easily. The larger you trade, the more accurate you must be with your entries and exits. The quicker you must cut your losses, because if the market moves violently against you it is eating up your account far far quicker. In my case 40 times quicker than usual. The 36% loss I took would have been less than 1%... how crazy is that.
So, as the day went on I felt pretty damn stupid. Stupid because I did not do what I knew I should have done, but at the same time I was confident I would not have traded that large to begin with if it were real money let alone hold a loser like that. A large part of that stupid feeling I had, was knowing I had to report it here on this blog, even knowing that part of the reason I let it happen was out of this pure video game "nothings really at stake" mentality. It's honestly the first time since I've started this that I have let myself feel that way about any of this. The other crap results in the previous months were testing. This wasn't testing, it was not giving a fuck and walking away because I didn't want to take a loser and have to build that money back up again... (even though if I wanted to I could just click a few buttons and add it all back anyhow)
But the next day, after I had taken the loser and felt even stupider... I looked at the chart again and sure enough the market had made all the losses up and then surpassed the drawdown by a significant amount. For some reason, I smiled and the stupid feeling had left me. I felt renewed and somehow optimistic, but not because I was somehow proven right. In all honesty, I wasn't proven right... Being right is going short because you think the market is going to drop right then, and it drops right then. I was dead wrong, so why was I happy?
In totality I don't know. And in time with enough thought I will hopefully come to know. But I think part of it had to do with going through that trial and stress, and actually feeling like lessons were reinforced in a way I benefited from immensely. I think it is from admitting to myself and to you, that I fucked up. No secret shame to hide, just transparency. I think part of it is also from the gut that told me not to be trying to do the things I did after the market proved to me immediately that I was wrong. my gut was right, but I was stubborn and greedy.
So, I honestly look forward to the next time I trade, whether it be at the appropriate time or not. I want to do it right, whether I profit or not. This doesn't have to be the end of my confidence, especially because it was outside my rules to begin with and that is what I should expect to happen. that is the purpose behind the rules to begin with.
Tuesday, December 16, 2014
Losing to Win, or just plain losing?
There are cycles to every aspect of existence that I know of.
I started taking notice those cycles in middle and high school, but specifically my personal cycles of emotional highs and lows.
Our schools would hand out these planner books each year and I actually loved them. They were a nice size with rounded edges and that spiral plastic spline holding everything together. I would doodle in the little calendar days, but I also started making some notes about how I would feel or what I would do that day. I wanted to go back and look years down the road and recall those moments. I began to notice that if I felt great at school I would tend to feel shitty and depressed at home. Likewise if I felt depressed at school I tended to feel better at home.
It's not anything I took serious study with, but it was just enough of a pattern to become noticeable to me. I think those were the formative times of me starting to analyze myself and life in a serious way.
Well, fast forward 16 years and here I am noticing different things about myself that I have never noticed before. Much of which I won't be writing about in this post or even perhaps this blog, but what I did want to mention is that I have been in a pretty shit place for awhile now.
One thing I can say, is that being in a shit place makes it an emotional challenge to even look at the trading progress right now. Losing basically 25 times in a row is pretty stressing in a way I haven't felt since 2008-2009; the last time I was actually in the market. I was trading real money back then and like I mentioned in a previous post, my risk per trade was 10 times the percentage it has been on this blog.
Here, with a $10,000 account a $10 loss is only 1/10th of a percent. 25 losses basically puts me down 2.5% but back in the day that would have been a 25% draw down.It's bugging me and it's still only a demo!
I know I keep saying that I have to remind myself that I am letting this robot just do whatever its going to do because I am gathering data, but damn is it difficult to watch 7% gains get eaten away by a market I know I shouldn't even be trading in.
What kind of data am I gathering you ask? Sometimes I am unsure. At first is was really just to see how the robot responds to live data instead of a historical backtest. It seems to do alright honestly as long as there isn't any crazy volatility from news releases coming into the market.
I suppose part of this data, is actually about me and how I psychologically handle a string of losses. It's also a curiosity of the unknown. As simple "What if I just let the fucker go?".
For those of you who have been keeping up with my posts and paying attention, you'll recall that the market has been doing pretty much what I have estimated it would do. I am thankful for that because it means I am not totally inept at reading the market, yet my actions and losses seem to reflect otherwise haha.
I have said a few times now that I expect the market to be choppy and for me to wake up to losses. That has happened.
An issue rising up in my consciousness is a question that says "If you suspect all of that rubbish why do you even have the robot running?"
Again I think curiosity is the best answer I can thoughtfully give. I think when I set out to test this concept, I wanted to just really put it through its paces. I want to discover just how bad it can get... I guess I want to see the worst it can get now with fake money rather than real money.
So far, even in my 25 sequential losses I have had several opportunities to take profits that would have the account well above the $700 in gains that were there before it started losing so much. When I get home, I plan to take a good look at the performance and document charts showing all the obvious profit that there was to take that I simply didn't.
There is a part of me that has evolved as a trader that makes this process pretty stressing to go through. You see, when I first started out trading I thought to myself "Well, everyone seems to lose money because they can't cut losses and they can't hold winners, so I'll just learn to do both."
Well, the key to doing that successfully as I have learned and am still learning, is to do it in a balanced way. And more specifically in a way that your approach requires based on expectancy and market conditions.
Back in the day I had much less of a problem taking 10 losers in a row because in 2008 when the US markets were crashing there was enough movement in a day that my 10 losses could be made back pretty easily. In the years since, directional volatility and daily ranges have died down considerably. This recent downtrend in the Euro (strengthening of the Dollar) is bringing back some of that large daily range again, but I don't think anyone can or should expect it to last. It feels to me like it is simply a result of the market struggling over whether or not this is the bottom of that drop or not. Very wide swings show a big fight between buyers and sellers. I think once the battle is over those daily ranges will decrease substantially back down to how they were on the downtrend to begin with.
When I had learned to hold winners, my problem became that I learned to hold them so long they became losers.
(I have a whole post about "Making it all back" coming up that will make a lot of sense to you so stay tuned for it. Very relevant to this situation.)
In short though, because I was down 10 losses already for the day, when I was finally under a winner I would want to hold onto it until it caught me up from all those losses and then some. In a market that's moving, that is possible depending on how many losses you've actually taken, but on a slow, choppy, unsure market day... The market will likely only have so much to give you and it won't be all you are asking or hoping for.
So when I say this has been hard for me to go through, it's because I feel like I am watching the same shit happen to me that happened back in the day; where I have a decent profit and I am just not taking it. But this time I actually want to take it.
I'm looking at these charts and where reversal points are likely to be and I am like "I should totally take this profit, but I'm not because of this stupid curiosity to see what the hell happens."
I'ts kinda making me feel like a fool, which is why I have to constantly remind myself that I am choosing to stay disciplined to that curiosity because it's what I set out to do.
Let me explain something though, because it's crucial to this situation: I can't physically be in front of the charts to monitor them.
I feel like if I had the control and the time to trade this robot the way I actually saw fit, I wouldn't even have it trading as much as I do. I would wait until the market where likely to be alive with movement and I would carefully choose to place the robot at key reversal areas.
If price got to that area and didn't immediately reverse I would like to be present enough to gauge whether or not it would be wise to implement my martingale risk profile into the mix. (Martingale by the way is usually a deadly stupid way to trade, but I have no data as to how it pertains to what I am currently doing with this robot.)
Not only that, I would really love to see how I can implement this robot during news trades with the martingale side of it. If price is just really directional and going to pop but I will take a few losses before it decides where to go I think that might really be useful.
But because I am driving all day and don't have the remote control I'd like to have... my only options are to watch it do whatever it's going to do, or take all the profit on any particular position, with no ability to relocate the robot yet.
The following sentence is something I think is a good question for all people to ask themselves:
If the flow of opportunity is never ending, what good does it do anyone to become obsessed with picking exact tops, exact bottoms or capturing the entire move?
I honestly think that as long as trading exists and volatility is tradeable, we should keep that question in our minds because it can help us cut losers quickly and take profits when the market makes them available.
But besides that, at the end of the day... there is still the serious risk that my broker's live execution will kill this strategy altogether and I'll need to keep looking. I have had problems with them before while trading live money and if those issues still exist, putting tens of thousands of dollars at the risk of a shady brokerage is not worth it. I'll have to be extra careful just to try and not get taken advantage of.
Thank you for taking the time to read this if you indeed did.
-Francisco
P.S. By the way, if Orange Juice hits $1.55 again I am selling. I wasn't watching and it totally hit it... I'm just calling it out now so no one can say it's hindsight trading ;P
Thursday, November 13, 2014
Going out of Business
I'm kinda frustrated right now because it's 10:00 pm and I wasn't wanting to wake up until 1:50 am to leave for the morning. I am tired, and I am hungry, but most of all I know for a fact I wrote what I am about to say once already long ago and I simply can't for the life of me find it.
So, as I take small bites of my Chobani strawberry yogurt, I will knowingly not say what I am saying with nearly the awesomeness as I wrote so long ago.
So... How to accept losses. That is everyones main issue at one point or another. I have always been a metaphor guy. When I just don't get what is right in front of me, I ask for a comparison to something I already understand. It has not only helped me, it has been a main tool I have used for explaining things to people in my life.
What trading has taught me, is that life is indeed a trade. We are trading all the time, so really just about any trading related point can be paralleled into your "real" life and vice-versa. The basic principles the life and reality operate with transpose and cover every single thing in one way or another, you just have to find the way it uniquely fits. In this article I wrote, when I wrote it I never set out to explain how to accept losing, it was just something that made sense and came out of me without effort at all. That is the way all my good writing comes out.
My point was based upon (as they usually tend to be) asking a simple question to myself or the supposed reader. In this case the question was something like "If you own a business, does it bother you at all to buy products and raw materials in order to operate that business?"
For example, if you own a bakery; does buying flower, eggs and sugar depress you? Odds are, if you are capitalized enough that those purchases don't hurt your finances, or over-leverage your credit, you view those things as simply part of doing business. It would of course be something you would want to research to get the best quality you can for your money, but once that is accomplished it would seem pretty crazy to feel like shit about purchasing the raw goods that are going to allow you to make a profit in the first place right?
Rent, Insurance, Furniture, Raw goods, Advertising, perhaps even employees eventually- are all part of the cost of doing business. You can't operate your business without them, so you accept them.
Now in trading, as I've mentioned before everyone seeks out to avoid loss altogether quite tenaciously in the beginning... How much sense would it make for any other business owner to be convinced there was a way to make and sell goods at no cost to them whatsoever? I'll answer that for you: Zero sense.
You know how when you were a child and there were many nights you sat at the table because you just couldn't stand the thought of eating whatever it was that was on your plate? I'll bet some of you now love that very thing you hated don't you? Well, if so let me ask you "What has changed, You or the food?" Of course you! Your sensibilities have adapted over time. That's what our brains are surprisingly good at, adaptation and reprogramming. What I want you to start doing for your trading and for your life in general, is to work on not just accepting losses that you now hate, but try and see most of them as a cost of doing business and the only steps you can take to proceed to profitability. In business and in life, there are just about always strategies to minimize loss or waste by streamlining your process or ditching it for something more productive altogether, but its important not to focus on that too much in the beginning. Doing that can tunnel vision you into the wrong frame of mind for a long time, like that guy in the "By age 23" blog from a few posts back. He spent that entire blog trying to streamline the losses away...
In trading try and simply see your losing trades as the literal cost of making yourself available to the opportunities of the market. That is exactly what it is. As a baker, you can't sell donuts without buying the inventory to bake them, and as a trader you can't make a profit without buying the risk that the market can reward you on. You are literally buying risk with every trade. Thinking of it that way will keep your mind focused on the potential risks instead of the reward hypnotism that happens to so many traders. Most traders define their potential reward, but rarely seriously consider their risk and because they have no plan to manage risk they risk too much and their trading company goes out of business. So, start treating your trading as a business, and I don't mean patronize the idea either.
View your trading positions as inventory. Your products are your trades. They will sell like crazy at certain times of day, or certain market conditions where the crowds just move your product off the shelf so quickly you won't know what to do! Other times, you'll find yourself needing to take a loss on your product just to make room for something else that will sell better, something the market actually wants. No matter what you do, as long as you don't buy too much inventory of something, you'll never run the risk of going broke because you bought something you'll have to take at a loss.
Rule number one, is to survive. SURVIVE and time is on your side.
Once you have survived long enough, you will come to know the market on a more intimate level. You will become connected to it and it will have a way that it speaks to you. You will begin to sense when to stock your shelves and when not to. And trading aside, when you take a certain interest in your life deeply, you will also grow in understanding of yourself. But only if you take a deep and earnest interest in who you really are. Just like the markets will tell you things you couldn't see before, you'll be able to develop an honesty with yourself that shows you what's real about yourself. And in knowing yourself to the core you will also know others. Just like in trading, in regular human interactions we try to avoid losses. Getting hurt emotionally is something everyone avoids, but most don't understand that it's where the true growth and appreciation in life stem from. Learning how much to risk with your energy and emotions is something I don't think anyone starts out knowing about themselves, but with practice will come knowing and with knowing, confidence.
A confident life is led by two types of people. Total fools with no experience, and those who've taken the time to learn how they and life operate. First, lose the confidence of any kind that there is a way to live life without risk. There there is anything at all worthwhile without risk. Because there isn't, and if you have no confidence in life right now I urge you to ask yourself what you really want and start working towards that. And don't just answer that question in 10 seconds, take some serious time. And if you honestly don't know, then just try something. Start moving in a direction, and if you don't like it fine you can change it, but for your sake start moving.
The only point in surviving in the first place, is to be able to continue risking.
So, as I take small bites of my Chobani strawberry yogurt, I will knowingly not say what I am saying with nearly the awesomeness as I wrote so long ago.
So... How to accept losses. That is everyones main issue at one point or another. I have always been a metaphor guy. When I just don't get what is right in front of me, I ask for a comparison to something I already understand. It has not only helped me, it has been a main tool I have used for explaining things to people in my life.
What trading has taught me, is that life is indeed a trade. We are trading all the time, so really just about any trading related point can be paralleled into your "real" life and vice-versa. The basic principles the life and reality operate with transpose and cover every single thing in one way or another, you just have to find the way it uniquely fits. In this article I wrote, when I wrote it I never set out to explain how to accept losing, it was just something that made sense and came out of me without effort at all. That is the way all my good writing comes out.
My point was based upon (as they usually tend to be) asking a simple question to myself or the supposed reader. In this case the question was something like "If you own a business, does it bother you at all to buy products and raw materials in order to operate that business?"
Rent, Insurance, Furniture, Raw goods, Advertising, perhaps even employees eventually- are all part of the cost of doing business. You can't operate your business without them, so you accept them.
Now in trading, as I've mentioned before everyone seeks out to avoid loss altogether quite tenaciously in the beginning... How much sense would it make for any other business owner to be convinced there was a way to make and sell goods at no cost to them whatsoever? I'll answer that for you: Zero sense.
You know how when you were a child and there were many nights you sat at the table because you just couldn't stand the thought of eating whatever it was that was on your plate? I'll bet some of you now love that very thing you hated don't you? Well, if so let me ask you "What has changed, You or the food?" Of course you! Your sensibilities have adapted over time. That's what our brains are surprisingly good at, adaptation and reprogramming. What I want you to start doing for your trading and for your life in general, is to work on not just accepting losses that you now hate, but try and see most of them as a cost of doing business and the only steps you can take to proceed to profitability. In business and in life, there are just about always strategies to minimize loss or waste by streamlining your process or ditching it for something more productive altogether, but its important not to focus on that too much in the beginning. Doing that can tunnel vision you into the wrong frame of mind for a long time, like that guy in the "By age 23" blog from a few posts back. He spent that entire blog trying to streamline the losses away...
In trading try and simply see your losing trades as the literal cost of making yourself available to the opportunities of the market. That is exactly what it is. As a baker, you can't sell donuts without buying the inventory to bake them, and as a trader you can't make a profit without buying the risk that the market can reward you on. You are literally buying risk with every trade. Thinking of it that way will keep your mind focused on the potential risks instead of the reward hypnotism that happens to so many traders. Most traders define their potential reward, but rarely seriously consider their risk and because they have no plan to manage risk they risk too much and their trading company goes out of business. So, start treating your trading as a business, and I don't mean patronize the idea either.
View your trading positions as inventory. Your products are your trades. They will sell like crazy at certain times of day, or certain market conditions where the crowds just move your product off the shelf so quickly you won't know what to do! Other times, you'll find yourself needing to take a loss on your product just to make room for something else that will sell better, something the market actually wants. No matter what you do, as long as you don't buy too much inventory of something, you'll never run the risk of going broke because you bought something you'll have to take at a loss.
Rule number one, is to survive. SURVIVE and time is on your side.
Once you have survived long enough, you will come to know the market on a more intimate level. You will become connected to it and it will have a way that it speaks to you. You will begin to sense when to stock your shelves and when not to. And trading aside, when you take a certain interest in your life deeply, you will also grow in understanding of yourself. But only if you take a deep and earnest interest in who you really are. Just like the markets will tell you things you couldn't see before, you'll be able to develop an honesty with yourself that shows you what's real about yourself. And in knowing yourself to the core you will also know others. Just like in trading, in regular human interactions we try to avoid losses. Getting hurt emotionally is something everyone avoids, but most don't understand that it's where the true growth and appreciation in life stem from. Learning how much to risk with your energy and emotions is something I don't think anyone starts out knowing about themselves, but with practice will come knowing and with knowing, confidence.
A confident life is led by two types of people. Total fools with no experience, and those who've taken the time to learn how they and life operate. First, lose the confidence of any kind that there is a way to live life without risk. There there is anything at all worthwhile without risk. Because there isn't, and if you have no confidence in life right now I urge you to ask yourself what you really want and start working towards that. And don't just answer that question in 10 seconds, take some serious time. And if you honestly don't know, then just try something. Start moving in a direction, and if you don't like it fine you can change it, but for your sake start moving.
The only point in surviving in the first place, is to be able to continue risking.
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