What is harder than losing money on one trade, is dealing with a losing streak. A series of losses has a double-edged effect. Not only does it deplete a trader’s account, it depletes the trader’s confidence too. And that is a hard place to recover from.
There are at least 2 types of trader in this situation. There is the trader who cowers in shame and disappointment when one loss turns into five. This trader is completely overwhelmed by the losses because the focus is on the losses and so, becomes emotionally attached to the account balance. They not only see each loss as a hit on their account (which, it is), but more importantly, a hit on their ability! Everyone hates to lose! It shows weakness. It shows incompetence.
But who cares? Why should a loss (or string of losses) affect you mentally? Have you ever played sport for a team that can never seem to win a game? What do you think the psychology in the dressing room is? One who is defeated in the mind, is defeated in the battlefield.
“It’s funny, you can get over the win pretty quick and get ready for the next opponent. When you lose, it just eats at you”. - Tony Romo
Imagine the trading world as a battlefield. Every trade you take is a strategy you deploy - a move. Every win is a battle won - Every loss, a battle lost. Now imagine losing 5 consecutive battles, how confident are you to deploy your next attack? It is exactly the same with this trader. The trader becomes less focused on “winning” and more on “not losing” which, of course, leads to losing. The 5 losses affect the trader mentally to a point where every trade in the future is taken with less and less confidence - sometimes, not enough to place the order.
“Losers are people who are afraid of losing”. - Robert Kiyosaki
Then there is the trader who sees every trade as a risk worth taking. This trader practices a risk/money management strategy that reduces the “risk of ruin” dramatically. Why? This trader focuses on winning. It is not that this trader is better than any other. In fact, this is far from true. This trader redefines loss and losing. This trader knows that a loss is a chance to learn a lesson. Focusing on the loss or not losing, will only hinder the trader from taking the next one.
“Losing sucks but I look more at what I gained as an individual, as an athlete. Sometimes, in losing, you learn a lot”. - Uriah Hall
The trader knows that a loss or series of losses will have minimal impact on the account due to diligent practice of a risk/money management strategy. Like this trader, we must possess the hatred of losing but avoid the fear of it. We must welcome the loss and move on, rather than let it overwhelm you.
Do not let yourself be the general who is too scared to play his next move.
“Winning is great, sure, but if you are really going to do something in life, the secret is learning how to lose. Nobody goes undefeated all the time. If you can pick up a crushing defeat, and go on to win again, you are going to be a champion”. - Wilma Rudolph
I guess, in a roundabout way, losing is winning. But that is dependent on how we lose and the lessons we take from the loss or losses. Losing money is easy. Taking the loss is what we must master to achieve success.
A word of reassurance - If you catch hell, don’t hold it. But if you’re going through hell, don’t stop. The only way out of a losing streak is through the losing streak. And what doesn’t bankrupt you, makes you a better trader.