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be held in my area in the fall of 1999, I heard this repeated by presenters: "You've got to learn how to lose money." Upon hearing this, it was easy to think they were just being pessimistic. But what they were trying to say by this is that you need to learn how to lose without it knocking you out of the game. You need to be able to handle a loss that may rip your guts out emotionally and not let this make you quit trading, even if it makes you gun-shy for a while. |
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In this way, they see losing as necessary and positive, so that they may learn the lessons of loss and be able to sustain themselves psychologically to keep moving forward in their learning curve. |
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Of course, because almost all day traders lose significant amounts in learning how to do short-term trading, this "losing is good" belief might be just a rationalization (good excuse) to make losing more palatable. I mean, if they could learn the lesson without having to lose too much, I'm sure they would prefer this, no? Perhaps this is another example of cognitive dissonance, the concept we presented earlier: If I tell myself losing is good and necessary for learning, it doesn't hurt so much and I am more able to handle the financial loss and the blow to my ego. I am less likely to give up in failure. |
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One of the things that sustaining a loss can do is broaden your perspective about the place of money in your life. I have found that having some losing positions over a long time no longer seems like such a big deal, as it did many years ago when I first began trading individual stocks. But it makes sense to say that one should never be risking amounts of money that, if lost, would deprive one of a single meal. |
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Some would say your losses should never deprive you of any sleep. But that is asking for a lot. Because sooner or later, the mistakes we make in timing, judgment, execution, or just bad luck can lead to some losses that very well may keep us awake at night. To the degree that any difficulty falling asleep can be used to analyze our mistakes so we are not so quick to repeat them, a little insomnia, as one of my teachers used to say, is nothing to lose sleep over. |
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Here's an example of one that caused me to sleep fitfully. It was the third straight day of massive selling in early January after they ripped the apron off the mother of all tech rallies. I happen to have added to my position in Lucent Technologies about an hour before news was released that, for the first time ever, they would fall short of their first quarter earnings. |
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I spent the afternoon in my office seeing patients and did not find out that something was drastically wrong until I called in for phone |
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