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Many traders struggle with losses because they aren’t thinking about trading as a business.
We know that trading is a negative sum game whereby someone wins and someone loses, however, many traders get off on the wrong foot because they are solely focused on the winning trades, and they find it extremely difficult to accept that they will take losses as well.
There are many contributing factors that play into this; one being the way trading is advertised, and another being the fact that us human beings naturally want to avoid pain and take the easiest path to pleasure. However, when it comes to trading, losses should be expected and must not be overlooked.
To be successful as a trader, we must understand that trading is a game of probabilities, not certainties. It is our job to use good judgement and strict rules of engagement into strategies that provide us with a slight edge over time. Losses are perfectly normal, and they are simply the cost of doing business.
The reason so many people struggle with this concept is because they are attached to the “normal” way of doing business.
Think about it, in a normal business, we package up a product or service, go out to the market, and sell that product for a cost that covers our expenses of creating the product, plus a profit on top.
The expenses of delivering that product or service might be third party resourced technology, consultancy services, graphic designers, staff, overheads, server space and so on.
Whatever is left after the cost of the overheads is deducted is called profit.
Trading is slightly different in nature, but there is still a cost of doing business.
Instead of each trade having a partial loss and profit, there may be instances where we have three winners in a row, followed by two losers, then another winner.
During our trading review, we can add up all of the winning trades, deduct the losing trades, and we have a profit! The losing trades are the cost of doing business.
When you think about it rationally, it seems obvious, yet people seem to think that trading is the only business in the world without expenses.
My motivation to teach is to give people the truth and realistic expectations, and this is by far one of the biggest misconceptions out there when it comes to this lucrative business.
If you enjoyed this video, let me know.
Also, don’t forget to come to our event on the 30th October!