Trader Tips
Nov. 19, 20207 min read

Stop Trying To Win Every Trade

Written by stockstotrade

Shout out if you like losing….

Okay, you already know that people don’t enjoy failure. And losing anything—especially money—is… well, not fun. Yet losing is part of the trading game, and it is a part that not a lot of traders are willing to face. Everyone is Trying To Win Every Trade. 

And it’s not just losing money that people hate. People often don’t even like to think about losing money.

But it’s important to face reality. You will lose sometimes. In fact, you’re likely to lose quite a bit, especially in the beginning of your trading career. And while most traders understand this at some level 2 quotes, there is still some deeply held belief that they ought to be winning every time. What this does is lead to severe disappointment, even to the point of giving up on trading altogether. Why are we still so bent on winning every time? Why isn’t it enough to win more than we lose? Why must we hold onto our guilt over losing, even after we’ve more than made up for our loss at a later date?

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It helps to be realistic about our losses. Yes, we should try to reduce them as much as we can. But we should be focused on reaping stable returns, rather than on winning every trade.

Here are some quotes about losing from some of the brightest trading and investing minds in modern history.

“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.” – Ed Seykota

Notice that the focus here is on cutting, rather than eliminating, losses. Seasoned traders know there is no point in trying to win every trad—it is but an effort in futility that will bring you only disappointment. Savvy traders focus instead on developing risk management processes to reduce losses—an achievable goal.

What’s more, the successful traders know that one, two, or a dozen losing trades do not equate to failure, because—you guessed it—everyone loses. It’s too easy to get bogged down in the reasons why you lost today or yesterday, forgetting to focus on the big picture, which is to make money in the long run (not to not lose).

“I always define my risk, and I don’t have to worry about it.” – Tony Saliba

Risk management is at the heart of loss control. First, identify your risks with the trades you want to make. Second, try to rate them in terms of how likely each of them is to materialize. Third, and most importantly, accept the possibility of losing despite all that you’ve done.

This acceptance will make you a better trader ultimately and it will actually help you minimize your losses. Why? It’s simple: the fear of losing is a stressful emotion. Stress does not make for smart trades. Sometimes it doesn’t make for trades at all if you’re too scared to buy into this or that company, because what if you lose?

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand.” – Marty Schwartz

Wise words. As you can see, everything is about control: control of your emotions, control of risks, and control of losses. You can’t make them disappear, so you have to learn to live with them. The way to do that is by applying rigid control.

You can do this by calculating the potential loses from your trades. Think of losses as the cost of doing your trading business. Every business has costs, after all. So, try to calculate them as accurately as you can in advance to keep them reined in. If you don’t, your losses may get out of hand and wipe out your account. Just imagine losing on a trade and then trading frantically to make up for the loss. This tactic seldom ends well.

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.” – Jesse Livermore

Trading is not a nine-to-five job, and you should not approach it as you would a regular office job. The inherent desire to receive continual, uninterrupted reward (as in, money) for something you do on a regular basis is natural, but it is not one that’s applicable to trading.

Trading is a game inasmuch as it involves betting money on a certain outcome of an event—the trade. Like every game, no one wins all the time. In other words, no one gets rewarded just for playing. So, stop thinking of it as a regular job with a salary and start making long-term plans for a certain realistic income, factoring in a level of losses you would be comfortable with.

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” – Peter Lynch

Notice the word realistic above. It would be good to think that minimizing your losses means losing once every ten trades, but this is the opposite of realistic, those with the experience and the success tell us.

Being realistic about your losses and chances to win also means dropping all attempts at perfection. Perfectionism is not your friend. It is not something worth striving for. There is in fact, as trading coach and author Brett Steenbarger says, nothing constructive about perfectionism. It is just a way to channel your frustration and anger inwardly, which ultimately diminishes your chances of success because you’re too busy thinking about your losses to start thinking about how to make some wins.

“Sheer will and determination is no substitute for something that actually works.” – Jason Klatt

There is only one way to become a successful trader, and it’s the same as the way to become good at anything: just do it. The more you do it, the more you learn, from your victories and your failures. In that journey, losses are invaluable since we learn much more from our failures than we do from our victories, especially in trading.

Being determined to make money by trading is a good start, but it is no more than that. To really make money you need to develop a routine, to gain experience and put it to use – a trading plan, discipline, and learning to not listen to your emotions are all facets of this experience.

“The market is a device for transferring money from the impatient to the patient.”- Warren Buffet

In the end, it is all about patience. The impatient trader would throw themselves at every trade on the wrong assumption that the more they trade, the greater their chances to win. If you’ve already tried this, you’d know that’s not how the game works.

You need to pick your trades and study them well before making your move. This is how you minimize your losses and maximize your chances of success with the added benefit of avoiding the urge to trade more to make up for losses. You will have learned to accept your losses and moved on.