We are brought up in society to WIN, WIN, WIN!
Throughout our upbringing we must either:
- Achieve top grades
Drive the fanciest cars
Wear and own the best brands
In other words, we are raised to win with everything we do in life, until you get welcomed into the world of trading.
Today I’m going to be the contrarian and share with you why you should love, embrace and own your losses in order to ensure you grow your portfolio on a consistent basis.
Let’s start with:
What happens after a winning streak?
There will be a time during your trading career, where you’re going to endure a magical time where you end up taking sometimes 6, 8 to even 10 winning trades in a row.
Your portfolio will be smiling at a new all-time-high and, you’ll feel invincible. You may think that you’ve cracked the holy-grail of trading where you can quit your job and just make a living with the markets.
Research shows that individuals tend to invest and trade more actively when their most recent trading performance was successful. In fact, here are:
4 DANGEROUS Actions Traders Take During A Winning Streak:
They take on more trades.
They upper their trading positions.
They start to go against their trading strategy.
Their self-confidence and greed levels pick up.
Winning streaks are normal and INEVITABLE, but eventually they’ll end and the losing streak will begin.
No matter how good you believe you are as a trader or how perfect your trading execution skills are, there will be a time when the honey-moon phase for your trading strategy will be over and the markets will stop acting in your favour every time.
The reason is that due to the conditions of , the markets environment will eventually change.
A market that was trending up or down, could enter into a 3-months sideways phase very easily. When this happens, you will enter into a drawdown (downside) phase.
The problem is not the downside for the next three months. The problem is how you’ll treat your trading going forward, based on the DANGEROUS actions you would have taken during your winning streak.
Let’s bring them back, to see what will happen to ‘invincible traders’ portfolios and minds with their unexpected losing streak…
They start to take on more trades –
THIS MEANS MORE LOSSES
They upper their trading positions –
THIS MEANS BIGGER LOSSES.
They start to go against their trading strategy -
THIS MEANS UNEXPECTED LOSSES.
Their self-confidence and greed levels pick up –
THIS MEANS DEPRESSION MAY KICK IN WHICH WILL LEAD TO QUITTING.
Now going back to what we said in the beginning.
When a winning streak ends, you should love, embrace and own your losses because of these five reasons.
5 Reasons To Love Your Trading Losses
Reason #1: Losses are part of your trading success journey
Once you have a winning and proven trading strategy, you’ll need to go back to your trading journal to remind you of the flow of winning streaks, losing streaks, average gain & loss per trade and other historical statistics.
I’ve back, forward and real-tested the MATI Trader System strategy for over two decades and so I know exactly what kind of winning and losing streaks are to come and that I’ll end up profitable in the medium to long term.
Reason #2: Losses help keep your emotions in check
Knowing there are inevitable losses to come, this should curb the ego, greed and fear emotions.
Reason #3: Losses should keep your risk low
With a losing streak that is inevitable to enter your trading results, this alone should be a reason to keep your losses low.
I personally never risk more than 2% or my portfolio in any one trade, no matter how many winning trades I take in a row. You can read more about the timeless money management rules in lesson three of the MATI Trader System programme.
Reason #4: Losses stop the “Hot Hand Fallacy”
Another reason that I love losses when trading is that it reminds me that the winning streak will come to an end.
This keeps me humbled and grounded to know that there will be a time where I’ll need to give back to the market, when the trading environment is less conducive to the trading strategy.
Reason #5: Losses don’t take me back to the drawing board
After a winning streak ends, you’ll find new traders will then quit trading and look for another system to find that will work for them during the changing market environment.
The thing is they don’t realise and accept that losses come with the trading territory and that one should never throw a profitable system away because a market enters into a drawdown phase.
Until next time,
Trading View - Timonrosso