Anatomy of a Loss

In every performance based endeavor there is the chance that loss will occur. This is certainly true for those who are traders. In trading, it is more accurate to say when loss occurs, not that there is a chance that loss will occur. While a loss can feel devastating when it occurs, what you do after will determine whether you let the loss defeat you, or you treat it as part of the overall win towards your desired goal.

Let's look at several scenarios that a trader can experience when a loss occurs.

First phase

A well defined and tested strategy before a loss occurs:

* See an opportunity based on a strategy

* Know the monetary risk involved for this particular trade

* Feel good about the prospects of the outcome of the trade

* Take the trade with a predetermined stop in place

* Stopped out with a loss

A loss that occurs because the rules of a strategy have been violated, or there is no predetermined tested strategy:

* Get into a trade on a whim

* Get in too late

* Miscalculate the risk when getting into a trade

* Get out too early

* Clerical error

* Have no stops, change the stop

Second phase

You have taken the loss and now you (On the positive side):

* Look for the next opportunity

* Take a predetermined break that you have established in your business plan for when you take a loss, and then begin looking for the next opportunity

You have taken the loss and now you (On the negative side):

* Get mentally and sometimes physically upset looping a story in your mind about the loss

* Take responsibility for the loss and condemn yourself

* Blame someone else and direct all your bad feelings towards him or her

Third phase

Handling the mental aspect (On the positive side)

* Know that losses are a part of the overall win and look for another opportunity

* Learn a lesson that you will not repeat and keep trading

* Realize that you must have a tested strategy and stop trading to put together a plan

Handling the mental aspect (On the negative side):

* Go to a dark place inside of yourself where you have placed losses of the past, and then get emotionally upset out of proportion

* Stay in a loop of upset, and then try to get back at the markets

* Continue trading in ignorance creating more losses

* Stop trading altogether

Facing losses from the beginning

Sandra knew from the start that losses would be the largest hurdle that she would face in becoming a trader. She made it a priority to speak to other traders about it and worked with a coach before she took her first trade.

As part of her trading business plan she created every scenario for contingencies in dealing with loss. Sandra's father, who was an avid baseball fan, kept reminding her that seventy percent of the best baseball players lose and still have great performance records.

With her father's encouragement and her own due diligence, Sandra started her trading career with the best preparation for taking losses.

Conclusion

Losses are a part of what a trader must face in order to become successful. How a trader handles those losses will determine how long it takes him to get there.

Adrienne Toghraie coaches traders and investors to their next level of success by helping them overcome their self-imposed limitation. She has been a keynote speaker since 1989, author of 13 books, and owner of TradingOnTarget.com.