The biggest impediment to successful trading is the lack of understanding that losses are part of the game and you have to accept them. The ideal system does not exist. If you expect perfection, if you hope that there is an ideal method – you can expect failure. Speculation is similar to the game of baseball. The player who hits the ball three out of ten times, is a very good player. Player hitting ball four to ten times earns hundreds of thousands of dollars. Remember that at ten times, he doesn’t get it six times. Although he isn’t a great player, he is among the best. Fortunately, you do not have to be perfect to refer serious successes as a trader or businessman. You must be better than most, and it is hard enough. The method selected must take into account the problem of money management. Money management can take different forms. Some methods automatically eliminate speculation after the loss of a specified sum of money (ie. Stops). If this method is not practical in implementation (eg. In case of the options), you can limit your losses risking only part of the capital in the trading. Your greatest triumph will be learning to accept losses.
Accept the Big Earnings and Small Losses
This requirement causes laughter among many people. It is simply because most of them don’t understand the problem. Let’s think about it. I present a typical scenario of events. All year you are trading commodity products with the future supply earning $ 1,000 here, losing $ 1,500 there, earning $ 3,000 here and losing $ 2,000 there. You are constantly using the selected method. This means that you are buying when the method “tells you to” buy and sell when the method “tells you to” sell. Suppose that within a week you have earned $ 4,000. Your friend, partner, broker or consultant, advises you to accept the earnings. You are brave, strong, so you wait. The next week, your profit is $ 8,000. It is the largest earnings in your life. “Cut out the shares”, advises the friend. You start to sweat, but you’re hoping for more money. Next Monday your stocks strongly goes down. “I told you,” reminds a friend. “You were too greedy. But do not worry, you’re still at a big profit, so take what your can right now.” The next day, you’re selling the stocks with the income of $ 5,000. This is your biggest gain in a year, so you smile, breathe a sigh of relief, and invite a friend to the expensive dinner. In a word, you are happy. Then, day after day for the next six months you look with frustration on strong bullish prices of stocks that you had, but already sold them. During this time, you’re trying to buy these stocks, but you can’t, because you offer too low price. Your method, if you used it quietly and consistently, would order you to sell these stocks only after six months. You count how many you could have earned if you were patient and kept originally bought stocks till the end. The sum is huge and amounts to $ 450,000.
Losses are Part of the Game
What was your problem? Just subconsciously limited your normal area of operation. After months of earnings and losses, constant anxiety, a sense of fear, when you had the ideal stocks to actually bring in the harvest of your work, you didn’t have enough strength. You were out of respect for your work. You had doubts. Betrayed method and lack of discipline, to earn as much as you could. Run out of imagination and subconsciously questioned possibility of huge earnings, questioned your abilities – who am I to think of huge earnings? Why would I earn more than the best earnings of the year?
To win you need to know why you play. Large fluctuations occur once or twice a year. These fluctuations reward the work of the last eleven months, or even years. Do not lose those opportunities for reasons other than your objectively defined method. By the way, it is worth noting that few people realize how huge effort, and hard work is trading at the stock market. Even the IRS treats the money earned in the stock market as unearned income. In other words, the work that you do as a trader, is treated by the tax office as idleness. The fact is that there is no more difficult job in the world than making money in the stock market. Believe me and remember that you deserve every hard-earned dollar but remember that losses are part of the game always.