Dealing With Losses

Predefine what a loss is in every potential trade. By “predefine,” I mean determine what the market has to look like or do, to tell you that the trade no longer represents an opportunity, at least not an opportunity in the time frame in which you trade.

Be willing to change your definitions of what it means to lose. Losses do not diminish you as a person. The sooner you believe it, the easier it will be to identify and execute a losing trade. By making the execution of a losing trade an automatic function of your trading strategy, you make yourself psychologically available to take advantage of the next opportunity, even if that opportunity is in the same direction of the losing trade you just got out of.

Execute your losing trades immediately upon perception that they exist. When losses are predefined and executed without hesitation, there is nothing to consider, weigh, or judge and consequently nothing to tempt yourself with. There will be no threat of allowing yourself the possibility of ultimate disaster. If you find yourself considering, weighing, or judging, then you are either not predefining what a loss is or you are not executing them immediately upon perception, in which case, if you don’t and it turns out to be profitable, you are reinforcing an inappropriate behavior that will inevitably lead to disaster. Or if you don’t and the loss worsens, you will create a negative cycle of pain, that once started will be difficult to stop.