Taking Trading Losses Personally (or not)
When I used to trade, I would get so irritated, angry and upset when I had a trading loss. If I had a string of previous winners and then suffered one loss, it pissed me off.
To make it worse, I would immediately look for redemption by reaching for a winning trade so the sting from that recent loss would go away.
You can guess what would happen next…another loss. I was trying to “get back” to where I was. To get back at the market. To get back that sweet feeling of another win.
That my friends…is a recipe for disaster.
I was reminded of this recently with 2 recent trades…in the EXACT SAME STOCK: PXS
Take a look here at a snapshot of my public Google Docs swing trading spreadsheet below:
You can see the loss I had on 11/20 with PXS. Then on 11/28, my next trade was….wait for it….in PXS again! This was purely by chance. In the days after I closed out the trade on 11/20, I continued (as I always do) to review new patterns that showed up on my stock screens and continued to review prior symbols that had appeared on my screens, monitoring them for ideal setups.
What is significant, is that I didn’t hold any grudges against PXS.
I wasn’t angry at the loss that I had taken. In the distant past (when I sucked at trading), I would never have touched PXS again. I would never have wanted to even look at where the price was afterwards because it had inflicted a loss on me.
I would take it personally.
Not only that, in the past, I probably would have taken a trade the very next day on 11/21, trying to “get back”.
However, I simply kept reviewing my screens and the best darn opportunity that showed up happened to be PXS. Also, by pure coincidence, I ended up getting back in at the same price.
I was stopped out on the prior PXS trade because the stock market was suffering wild swings and got pulled down with the rest of the market. However, in the days afterwards, I was surprised how well it held up and didn’t plummet further (they are a tiny oil tanker shipping company) with further stock market gyrations along with a further decline in the price of oil.
On 11/23, PXS simply looked like a great trade to take! AGAIN!
To give you further perspective, look at the string of losses before that PXS loss:
There you have 3 losing trades in a row. All the “harder” to take the next trade in the exact same stock on 11/23. But I hadn’t taken it personally and wasn’t trading out of anger, or trying to get anything back. It was just the best looking trade to me at the time and so I re-entered PXS.
You can see that it turned out pretty darn well.
That’s my point here…you can’t take losses personally. They are a part of trading. After this sequence of trades…
- 3 losses in a row
- Re-entering the same ticker that caused a prior loss without any malice or sense of getting revenge
I was reminded of seeing quotes in the classic Market Wizards trading book by Jack Schwager (interviews with legendary traders) where traders discussed losing and the psychology around taking losses.
I took the time to leaf through my well worn book and pull out some quotes to share with you that highlight how these traders view losses, as well as not taking trading personally.
If just one of these quotes resonate with you, great.
If the general theme of these quotes resonate with you, great.
The key is to start thinking about not taking trading losses personally, but as a part of doing business as a trader.
Trading is a business, not an emotional roller-coaster of highs and lows.
With that…take a look at quotes that are meaningful to me related to these two recent PXS trades…
How top traders view their losses – Market Wizards, By Jack Schwager
Another thing is that if a position doesn’t feel right as soon as you put it on, don’t be embarrassed to change your mind and get right out. – pg 39
If you become unsure about a position, and you don’t know what to do, just get out. You can always come back in. – pg 39
You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money. – pg 59
They personalize the market. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not. – pg 80
Paul Tudor Jones
If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start. – pg 125
I think one of my strengths is that I view anything that has happened up to the present point in time as history. I really don’t care about the mistake I made three seconds ago in the market. What I care about is what I am going to do from the next moment on. I try to avoid any emotional attachment to a market. – pg 125
You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally. – pg 146
I was able to separate my ego needs from making money. When I was able to accept being wrong. Before, admitting I was wrong was more upsetting than losing the money. I used to try to will things to happen. I figured it out, therefore it can’t be wrong. When I became a winner, I said, “I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.” By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what! – pg 265
They would rather lose money than admit they’re wrong. What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.” – pg 279
You have to learn how to lose; it is more important than learning how to win. If you think you are always going to be a winner, when you lose, you will develop feelings of hostility and end up blaming the market instead of trying to learn why you lost. – pg 341
Van K. Tharp
Most people become anxious about losses, yet successful speculators have learned that an essential ingredient to winning is make it OK to lose. Since most people in our culture are taught that only winning is acceptable, most investors must change their beliefs about losses to become successful. – pg 415
Across all of these great traders, you can see a theme that losing is just a part of being a successful trader. If you try to force gains from the market and get emotional over losses (and wins), you will have little chance of making it long-term as a trader.
Instead, if you view the most recent trade as just any other trade trade, only one of over a thousand more than you will have in the future, it helps to give you some perspective.
When I first started trading, one of my biggest issues after a loss was my need to immediately grasp for the next trade and try to get back to where I was. Usually, I was trying to force the trade. Deep down inside as I was taking that next trade, I knew that it wasn’t ideal, but I took it anyway.
I was hoping
Grasping at straws.
Sometimes it would spiral out of control and I would suffer a huge draw-down with one bad trade after another.
So don’t take losses personally.
Take the time to evaluate the next most ideal trade. Don’t hold a grudge against your last trading loss (PXS)… keep an open mind and take your time looking for the next ideal opportunity that comes your way (PXS) and take it. 🙂
Good luck out there and don’t take trading personally!