Losses in trading are just a metaphor. You, me the person next to you on the train and ANY other single person in the world is dealing with losses during their entire life. How you deal with the losses though is what makes the difference between successful people and the rest of the crowd.

Losses in trading and losses in life

From the time when you were a baby you are dealing with losses. Your first steps and first falls. Have you quit trying to walk after you fell 3-4-5-100 times? No you didn’t. You took the loss and you moved on because the reward of walking is TIMES bigger. You didn’t know that consciously but you are wired this way. We all are. People are fighters – not quitters.  Look back in history. We fought for our lives, to eat, to survive, we did it, we evolved and here we are a few million years later.

Next you grew up, you went to school. It was time to pass your finals, it was time to apply to a college… Some fail and quit other would put more hard work and will get in where they want to study from the second time. You either accept the loss and dust off and move on or you go home!

You have been a trader during your whole life, you just didn’t know about it. You have the mentality to be one, you just need to call it, bring it to the surface and use it. Don’t be afraid to lose. Also don’t try not to lose. Perfection doesn’t exist. The more you try to be perfect, the worse it will get.

The Holy Grail In Trading

This is probably the first obstacle any beginner trader should go through. Trading without losses doesn’t exist. Trading with too many losses also doesn’t exist as you will blow up your account. Trading with controlled losses is what you are aiming for. As long as there is limit and you make more than you lose, you will make money in the long term.

Losses in trading and statistics

Let me give you an example. See the image below. Say that you are a false break trader. No other confirmations for the sake of the example. If you don’t know what a false break is read here.  After each false break we would enter a sell trade, at the close of the red bar (marked with green arrow) and we would put the stop loss right above last high price created. Target is last swing low. It is more than obvious that we would be risking just a few pips, aiming for much much higher reward. 1:4 / 1:5 maybe. You will also notice that even if we got stopped out twice (trade 1 and 2) risking 40 pips the first time and slightly higher than 30 pips the second time, we would get over 170 pips in the third trade. This is what controlled loss means. This is the power of Risk:Reward Ratio and Statistics!

And this trade example doesn’t consider anything else. We don’t look at the higher time frame direction, we don’t check the current cycle, fibonacci ratios, trend lines, divergences on lower time frames – NOTHING! False break and statistics.

If you know that you are going to win 5 dollars for every 1 dollar you risk, won’t play the roulette all night long?

The sooner you realize that, the sooner you will start making money, and worry less. And indeed why worry if you know that you can get it wrong 5 times, and only 1 time that you are right, you will be at break even. No profits, just break even but NO loss.

This is when trading becomes fun and pleasure. When there is no panic sells and buys. Impulsive closing of trades etc. Statistics are your best friend – trust me on this on!

Here is another example that I gave you in a previous article. If you run a business you have costs (losses). For the business to be successful you must make more than you spend to run it. So after you deduct salaries, production costs, rents and all other costs you have on monthly basis there should be enough profits to cover it all, and something on top for you to profit, right? Losses are everywhere you turn. This is how the world works and trading isn’t any different. So why do you think you can have loss-free trading account?

Regardless whether you are just starting out or you have been involved for some time already but you are still thinking you can find the holy grail – stop. It won’t happen and the more you look for it, the bigger the hole will become. It will mentally crush you and discourage you.

Let me know what you think on the subject. Comment section is open and waiting for your inputs.

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Yours,

Vladimir

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