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1. Denial. The refusal to face a loss and to let the trade continue against you is a real recipe for disaster. The attitude that "it's not a loss until I sell" has ruined more traders than we care to think about. |
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2. Inaction. Rather than risk a loss, you just don't trade. This is the fallacy of "if I sleep on the floor, I won't fall out of bed." You miss out on the whole game. |
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3. Confusion. Confusion is caused by trading without a clear plan at the time you enter the trade. Not knowing what to do creates hesitation, which increases your emotions, which gets you back on that cycle to poor decisions and more emotion. |
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4. Anger. Some traders take losses personally and claim "the market is out to get me." Wrong! The market doesn't care about you. Your little trades are but a drop in the ocean. But anger certainly increases emotion, and you are on the cycle again. |
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We have identified only one good way to handle losses. This four-step process brings success: |
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1. Plan your trade based on a high-probability chart pattern. |
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2. Identify your signalyour entry signal, your stop loss, and your exit target. |
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3. React automatically by following your strategy to take decisive action with no second-guessing. |
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4. Feel good about the trade. Your decision and your execution were based on methodology, not emotion. You must feel good because you did the right thing according to your plan. Regardless of the outcome of this one trade, you know that your high-probability trades will succeed over time. |
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Take a healthy view of losses. They happen. If you don't make mistakes, you won't learn. Your motto should be: "Win or lose, it's another step forward." |
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Those of you who admire Winston Churchill know that his life was an unending series of failures until fate thrust him into the role of Prime Minister of England during World War II, where he rose to the challenge perhaps better than any before him. |
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Sir Winston understood losses. He understood losing and his perspective on handling failure is timeless: "Success is the ability to go from one failure to another with no loss of enthusiasm." |
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