[MrPaul]

More from the site formerly known as Innerworth...

Losing May Hurt, But You Will Survive

It's amazing how many traders have lost big before they became master traders. Trader David Kyte notes, "experts in losing are not life's losers." It's ironic, but to be a winner you have to learn how to lose. "Winners have far more experience losing, because they get up over and over again. A loser only loses once, that's why he is a loser" (p. 123; Patel, 1997). True losers in life are afraid to take chances. They live under the assumption that winners face win after win, but little do they know, a winner faces many more setbacks than successes. David Nassar (2006) observes, "Losses are inevitable. They are as common to active traders as strikeouts are to major league baseball players. Ballplayers who can't deal with striking out or traders who become depressed by repeated losses are doomed to the bush league." (p. 14).


In our interviews with successful traders, many have reported experiencing significant setbacks before mastering the markets. Dan reported, "One time I lost virtually everything in one or two days...I think I lost four or five hundred thousand dollars or something like that." It was a severe setback, but Dan knew how to lose. At the time, he thought, "It's only cash. It's not my life that I lost. I can get it back. It's not the end of the world. I'm not losing my house, my car, my credit cards, or my friends." Similarly, Don described the setback he experienced when he first started trading full time: "I went from trading to provide supplemental income to trading to put bread on the table for a young family...The first month was a disaster. It was an absolute disaster. In about four trading days, I gave back about 70% of what I had made in the five months preceding my decision to trade full time. At that point, I went through my own personal abyss that I had to pull myself out of."

Losses and setbacks are part of life. In all walks of life, people work extremely hard to pick themselves up after setbacks. Have you ever asked a salesperson how many calls he or she had to make before getting a sale? In some cases, less than 5% of the calls lead to a sale, but if just one of the cold calls pays off big, then it was worth all the effort, right? Cornell psychologist Dr. David Dunning notes that many people are unaware of the time and effort it takes to be successful. Many college students, for example, believe that reading a book just once is sufficient, and because they "studied," they feel they should get an A. But ask the valedictorian what he or she did and you will find out that he or she didn't merely read the book just once. Indeed, I once asked a valedictorian of a competitive university how she was able to get an A in every class. She said she read every reading assignment four times to make sure she got it right! If you ask traders how much time they put in, you'll find the same thing. Winning traders spend most of their time "insanely focused," as Bill Lipschutz describes it (Patel, 1997), in that they put in late hours studying the market action. They put in more time and preparation than you might imagine, but do they always win? Unfortunately, many times they lose. Losing isn't the problem, but getting extremely disappointed because you lost is. It's useful to think optimistically. If you put in enough hard work and effort, and repeatedly pick yourself up after setbacks, you can master the markets.

[Sparrow]

Hi Paul,

I like that article, thanks for sharing. Steenbarger's blog featured a simililar one today. Here's the link.

I hope this is not the end of the series, thanks for sharing.

I'll be leaving the trading wing for today now .

[Hlm]

Yes, excellent read and spot on…thanks for sharing.

However, I had to laugh at the following statement:

But ask the valedictorian what he or she did and you will find out that he or she didn't merely read the book just once.

Now my experience might not be the "norm", but the two valedictorians I know DID just have to read everything once. A photographic memory is a wonderful thing when dealing with your standard educational system.

[mister ed]

I like the message in the post, but some of the examples seem far-fetched.

Dan lost four or five hundred thousand dollars..."or something like that." Maybe his capital base was in the millions, because otherwise he might have wanted to pay a little bit of attention to money management.
Then it says "Dan knew how to lose". Got that right.

And what about the next guy, went full-time and lost 70% of what he had made in the previous five months in just
four days! Someone buy him a copy of Van Tharp - please! Or at least advise him on how to place a stop.

I do like Bill Lipschutz description of "insanely focused" though.

[MrPaul]

Originally Posted by Sparrow »

Hi Paul,

I like that article, thanks for sharing. Steenbarger's blog featured a simililar one today. Here's the link.

I hope this is not the end of the series, thanks for sharing.

I'll be leaving the trading wing for today now .

Steenbarger's blog is the best on the net imo