Can You Handle a Trading Loss?

So many wins, so many losses.  Yet mentally we are far more prepared to win than lose, and that can lead to disastrous consequences for any trader/investor.  You have to know how and when to take losses and bounce back from them.  Losses are all part of the game, but we don't want to have a long string of them or we'll end up on the sidelines for quite some time.

A trader feels bold after a string of wins, invincible when perceived losses also turn into wins.  But we all need to understand the more plays we make the more vulnerable our capital becomes.  Options trading is a game of leverage and time.  If you have enough time remaining and a stock moves sharply in your direction, your option leverage rises exponentially.  But we book many losses as well, the odds are just not in your favor when buying a wasting asset.

But back to trading losses for a moment.  Many have a difficult time losing.  They often hide from losses, make excuses or deny they ever happened.  Frankly, it's a recipe for disaster as the mental challenges of the trading game become more difficult.  Those in denial believe they have the will to push the markets around, make them bend to their own desires.  The market gods destroy these players, slowly but surely.  Capital flies away to 'money heaven'.

But some are able to accept losses, not as mistakes but as something that is part of the game.  This is no different than what happens in sports.  Perfection is elusive, losses tend to come from time to time and teams make adjustments to get back on the winning track.  Traders have to do the same, examine their trades and make the necessary moves to also get back on track.  Some will dissect a losing trade, analyze and figure out why the trade failed to make money.

That's all fine and good, but what I have found is taking the next trade is the tonic needed to right the ship.  Many traders get into slumps, I've been in many of them myself.  The best and only way to break it is to keep moving.  Absorb the loss in your mind and let it go.  You'll probably hit a monster winner the next few times out.