What’s the difference between an amateur and a professional trader?
Professional Traders don’t try to avoid losses. They minimize losses but do not avoid them. Amateur traders believe they can outwit the market and are constantly searching for trading strategies with a high win-rate.
How to Deal With Trading Losses
- Consider yourself a manager of bad trades. The profitable trades will look after themselves – sit back and let the profits run. However when a trade turns against you, cut your losses quickly and move onto the next trade.
- Find a trading strategy that works and validate it. You may design your own trading system, you may purchase a strategy or follow someone else’s advice but the key is to find a strategy that suits your personality. If you are comfortable and confident that your strategy works then you are more likely to stick with it when the losses come (and they will come!)
- Never second-guess your strategy. If your trading rules are telling you to exit a position…then get the hell out! Don’t presume you know more than the market. Don’t wait to see if a bad trade will turn around in your favor. It may, but it may continue to go against you and therefore create larger losses.
- Reality check: you WILL have losing trades. The goal is to make the losses insignificant so you are not taken out of the game and unable to keep trading. Large trading losses cause damage to your investment capital AND to you psychologically. It is very hard to step back up to the plate and take the next trade if you have a huge trading loss. Therefore, have a very clear risk management strategy and stick to it.
- Find a trading mentor and follow their trading results. This is exactly what I do. If my confidence wains I look up the trading results of some of the trading masters and the first thing I notice is that they have a LONG track record – 20 and 30 years. But the main thing to notice is that they have losing trades, losing days, losing months and even losing years! Yet they still make money in the long term. Building wealth is a marathon not a sprint.
The sooner you learn to think like a professional trader the sooner you will be on your way to wealth.