How would you like to start turning your losses into wins? Sound impossible to you? Well, in a way, you’re right – it pretty much is.
A loss is a loss is a loss.
But if you can take the lesson from your loss, and use it to make darn sure that you never make that mistake again, then ultimately that loss can become a win.
You’re human. You make mistakes. No matter how well you think you have mastered the mental challenge of becoming a successful trader, you will still slip up. No matter how many times you have read Mark Douglas’s masterpiece, The Disciplined Trader, you will still make mistakes.
Yes, it is inevitable. You will make a mistake. You will allow outside circumstances to influence your decisions, or to distract you. You may cancel a stop loss order, or make a trade that far exceeds your usual trading size or something of a similar nature, and the absolute worst that can happen, will.
You will find yourself facing a loss of substantial size, and you will be punching yourself in the face because you know it is all your fault.
The key is in what you decide to do next.
First off, acknowledge that you are human.
You are, aren’t you? You’re not some kind of trading robot.
And human beings make mistakes. Face it, they do. They are not perfect.
But you need to also realize that mistakes are opportunities for learning what to do, and what not to do.
As stupid as it may sound, and as comforting as it may be (NOT!), there is a silver lining in that grey cloud. You can use it to your advantage if you choose to.
Secondly, define the mistake.
Was it just one mistake, or did you make a series of mistakes? Did you rush a trade before your plan indicated an entry? Did you ignore a stop loss or an exit signal?
Did you throw your entire trading plan to the wind and go completely on instinct? Did you get too aggressive, in an attempt to make up losses, and increase your trading position size beyond your regular parameters?
Next, examine the circumstances that led to the mistake.
Identify the actions and especially the emotions involved. Were you fighting with a loved one? Were you distracted by an event, either good or bad?
Once you suffered your initial loss, did you then compound the problem by engaging in revenge trading?
When you are emotionally involved in something else, you cannot be dedicated totally to your trading. It’s hard to be unemotional when you are clearly emotional. In these circumstances, it is far better to refrain from trading until the situation is resolved.
Likewise, when you are distracted either physically (cannot be present at your trading desk) or emotionally, it is best to stop trading until you can give your trading your full attention and effort.
Finally, make sure you don’t do this.
Don’t try to make up a big loss in just one trade. Trying to make up a big loss all at once is bad money management and a sure-fire recipe for disaster. You must understand that a 10% loss will require a gain of 11% in order to get back to even. A loss of 25% requires a gain of 33% in order to get flat.
You have made a mistake, you have suffered a loss far larger than your regular system losses, and you are upset about it. The most critically important thing for you to do now is to return to your regular trading strategy.
You need to bring your emotions back under control and get your discipline going again. Acknowledge that there is no quick or easy way to get back to where you were, and that to try to do that is to pile on more mistakes.
Resolve to learn from this error. Resolve that you will not allow this particular situation to EVER happen again.
You may make more mistakes in the future. After all, you are human. But if you can manage to truly learn, to derive meaningful knowledge from your mistakes, then that is the way to turn a loss into a win.