Are you Trading Not to Lose?

There is a subtle distinction between successful and unsuccessful traders.¬† Successful traders don’t operate out of a fear of losing, while amateurs do. Do you want to lose? Likely not, but this is the wrong mind frame for trading in the first place. Trading not to lose means you haven’t fully accepted the risk of trading. Here’s why trading from the mindset of “not to lose” causes problems for so many traders.

Fear Based Trading

Trading not to lose typically involves a fear of losing which translates into:

  • picking and choosing which trade signals to take (trying to outwit your trading system)
  • Letting a loss run beyond what it should
  • Not being able to fully capitalize on a move, and thus be adequately rewarded for risk (a problem with most binary options)

All these problems stem from one issue–being more concerned about whether you win or lose, than about simply following your plan.

Trading is Probabilities 

Winning or losing is at the forefront of most novice trader’s minds. They desperately want to win, but even more so, they don’t want to lose. When you don’t want to lose, all the above problems develop. The main one (as it encompasses the others) being that by operating out of fear you don’t take all opportunities that market gives you based on your trading plan.

When you don’t take all the signals, or if you jump out of trades too early or hold them to long, you are no longer trading according to trading plan and therefore are likely to lose your capital over a great many trades. They very thing you didn’t want to happen, will happen. Why is this?

Think of a game of blackjack, except you are the casino, not the gambler. And each of your trades represents one hand of a blackjack. Have you ever seen a casino owner run downstairs from his office to stop a hand from going forward, or stopping a hand mid-deal in order to “bail out.”¬† Of course not. Legality aside, casino owners realizes that one hand doesn’t matter. Each hand is independent of other hands, anything can happen on that one hand.

Over a great many hands though casino owners know they hold a 3.5% to 4.5% advantage (depending on house rules). So while they may lose many hands, at the end of year they are likely to have made 4.5% on all the bets placed at their blackjack tables.

Traders also need to adopt this mindset. They must completely let go of the outcome of individual trades. If they have a system that has been proven to win over a significant amount of history–whether they tested it themselves, bought it or learned it from someone else–they must trust that edge (like the casino’s 4.5%) and trust that it will come to fruition over a great many trades. One trade doesn’t matter. It doesn’t matter if you win or lose on it. If you are trading a proven winning system, over a great many trades you’ll win. As an added benefit, a good trading system can have a much greater edge than the casino has.

Most traders, while they try, can’t accept this when they go to apply it though. They let past winners and losers affect their judgement, when instead they just need to trade the signals happening now, and not worry about the past or the future.

Final Word

Emulate the casino owner. They don’t care about whether they win or lose a hand at a table, even a lot of losses in a row typically don’t concern them. Over a great many days (trades) they know they have an edge. Your proven trading plan is your edge. Exploit that edge as often as you can based on the signals provided. Do this, and over time you will see that edge materialize, in profits, in your trading account. Try to guess which hands/trades will win or lose though, and you’ve just become the sucker on the other side of the table.