The positive impact of losing money

use protective stops orders

“Mental stops” are not really stops, per se, but thoughts. It’s a price where you are losing money, but aren’t emotionally ready to take the loss, so you don’t take it.

Maybe you’re not willing to take the loss because you’ve done a lot of work to research the trade and you feel it’s not fair that you didn’t get paid. Well get used to it. Neither the market nor anyone cares about what you put into your trading.

Long term success comes down to your consistent behavior: putting in the orders and taking small consistent losses.

Mental stops are an emotional place where you want to re-evaluate the situation to figure out what to do. That’s the point where your lack of conviction in your process is starting to work against you.

I think that’s especially true for chart readers and discretionary traders. System traders put in their stops, get stopped (or not), and wait for the next order to be generated by the system.

The reality is that you’ve lost money. End of story. You have lost the money regardless whether you’ve “locked it in.” Don’t let the accounting language dissuade you from trading the way that will impact your trading positively. Losing trades don’t come back – they get worse.

Yes, taking consistent small losses actually impacts your trading positively. Of course you eventually have to make money, but there’s a big difference between coming back from -10% than from -50%.

Put your stops in and take solace in the fact that you’ll be automatically get taken out of the trade before I lose even MORE money. Two, think in terms of percentages and not what the dollars could have bought you. This is a different quality of money than what you’d be saving (the act of not consuming) or using for discretionary spending. I think that’s also the way blue collar workers think – in terms of dollars and wages. Think in terms of percentages. It’s not like you have your investment money and spending money co-mingled.

Conclusion

Being able to take small consistent losses is the hallmark of a pro trader. Losing money does not mean you suck or that you are a loser at trading. The stop price is the point at which you are willing to transfer the risk to someone else. The positive impact of losing small, is that you don’t need to gain 100% to be “close” to break-even.

If you want to be a pro, losing money is part of the business.