People who put money into a bank savings account expect their investment capital to continually increase and never suffer even a temporary loss. (Of course, they fail to consider that between inflation and taxes on interest earned, they aren’t making any money, and that the real value of their “investment” is, in fact, continually deteriorating.) If that is the mindset that you have – that you simply cannot bear the thought of the amount of your investment capital ever dipping down, as opposed to continually going up – then you don’t have the mindset necessary to be a successful trader.

For a trader, losing trades are part of the game, every bit as much as strikeouts are part of the game for baseball players, or incomplete passes are part of the game for a football quarterback, or bogies are part of the game for a golfer (even Tiger Woods). In fact, the analogy of quarterback in football is a fairly well-chosen one. A quarterback is considered “successful”, and actually very good, if, on average, he completes about 50% of the passes he throws.

Likewise for a successful trader. In my own case, I have earned a very good living from trading with a winning trade average of just around 40%. Yes, you read that right – I am what some might call a “master trader”, and yet my total trading history shows more losing trades than winning trades. Some people (who don’t know much about trading), when they hear me say that, wonder how it can be possible. It’s possible – it’s eve n easy to do – because my average winning trades are so much bigger than my average losing trades, about 3-4 times bigger, to be exact. When I take a loss, it’s a small one. In over a quarter century of trading, I can practically count on one hand the number of times that I’ve risked more than $1,000 per contract on a single trade. My actual realized losses tend to fall in the $300-$500 range. In contrast, my winning trades average $1200-$1500, that is, about four to five times larger than my average losing trades. Therefore, I can lose up to 4 out of 5 trades and still be an overall profitable trader.

Losing trades are part of the process. Losing trades provide you with feedback on your trading decisions, every bit as much (sometimes more!) as winning trades do. Losing trades allow you to take the pulse of a market, to get a feel for current market action. Losing trades help you hone your trading skills. I wish that every trade I put on was a winner – just like quarterbacks wish they completed every pass they throw, and baseball players wish they got a hit every time at bat. But that simply isn’t the way it works. The way it works – reality – is that even the very best trader is not a perfect trader; even the very best trader has losing trades. I remember a super-successful bond trader who, when interviewed, claimed that he never had a single losing day in the markets. The interviewer was, naturally, skeptical of such a claim – but when she checked it out, found it to be true. In ten years of trading, this trader had never had a losing day. However, the untold part of the story was the fact that this trader still had numerous losses within the course of any given day – but still came out ahead due to the fact that, at the end of the day, his winning trades always added up to a higher total dollar amount than his losing trades.

Being willing to risk being wrong, to take a temporary loss, is what enables you to be there and to be right when there’s big money to be made. If you can’t stand taking a loss, you will never become a superstar – at anything. And you’ll never make a million dollars through investing either. You might as well just go ahead and get yourself a savings account at a bank.

Halston Adams
http://www.futures-trading-strategy.com

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