Let me start by stating that among the lessons every trader needs to learn to be successful, you must learn how to take a loss. In my previous articles, I have said some things about this, but in this article, I want to reorient your mind on the power of taking a loss while trading.
The Fear we all Encounter
What is that one fear you always face when you trade? I believe that everyone faces one basic fear while trading, at least as a neophyte: the fear of losing their equity. This fear is normal, but not healthy. It’s true that the primary goal of trading is to preserve capital and maximize profit. But as much as you seek to protect the downside, you should also know that there’s a thin line between responsible trading and fearful trading.
Fear has a way of blocking your pathway of perception and objectivity, thereby creating the very experience you’re trying to avoid. Success is a product of engaging ideas that stem from a clear mind and a pure spirit. Fear has a way of clouding your mind with unreal images and false thoughts that create negative energies. A trader who has let fear take hold of their mind is prone to make wrong decisions consistently.
The Responsible vs. the Fearful Trader
A responsible trader is a trader who trades with discipline and pays attention to capital preservation. This trader looks for the best entries to any trade, and in situations where the trade goes against him, he cuts his losses and looks for a better trade opportunity.
The fearful trader has fear controlling every aspect of his trading: fear of missing a move defines entry points, and exits are defined by the fear of losing either what is already made or equity in losing trades. The cunning thing about fear is that it presents itself as though it works for your benefit and makes you its victim. But in the true sense, a fearful trader will find out that fear blocks his ability to see what is right before him or even stops him from acting on clear-cut realities that have the potential for profitability.
Why We Love Losing: Understanding the Psychology Behind Taking a Loss
Sounds weird, right? Why should a trader love losing? The answer is simple: you can’t win or become a successful trader if you don’t lose.
Why do you think even successful traders take a loss? It’s because they understand that holding onto a losing position will only cost them their equity and prevent them from being able to trade another day.
You’re scared of taking a loss because you don’t want to lose what you have already made from the market. Your mind has been conditioned for wins alone, and you have not come to terms with the reality that you cannot win every day.
Even your everyday price action teaches this principle through the consistent impulse and corrective wave patterns printed on the chart. Instead of conditioning your mind for everyday profit, condition your mind to have higher wins over time, irrespective of the losing trades.
You’re also finding it difficult to leave a losing position because you don’t realize that your fears have blocked your perception and your objectivity, which is supposed to show you that your trade analysis is wrong and invalid. This leaves you with false hope that will always leave you pained and disappointed.
You’re scared of closing that losing position because you don’t see beyond your current trade the hundreds of profitable trades you could have in the future. Your fear has locked your mind in the present and blocked every bit of foresight in the better opportunities that could likely pan out. Also, this fear has a way of stopping you from seeing that a small loss can become a big loss if you don’t set your risk parameters and stick to them.
Profitability is not luck. Redefining your mindset is key to experiencing the best possible trading outcome. As much as you love to take profits, start conditioning your mind to take losses. It’s an inevitable part of the game.
