In the world of trading, winning is the goal right? And when we take the loss, we made a mistake right? Note quite… sometimes wins are bad, and losses can be good. Some of you will be able to connect with this idea right away, while the rest of you are probably scratching your head thinking “How can that be?” Allow me to explain.
When we place trades in the market, we can do our homework, catch the move we anticipated and make gains. Or alternatively, we can simply trade based on emotions or guess, and sometimes win from this as well. But other than the financial gain made from the latter, we not only don’t usually gain knowledge from these trades, but it can lead to a false sense of understanding trading when we really don’t. This can lead to excessive risk, and a hubris that comes from being right. Our goal as traders should be not only to win, but to understand fully why we won, and having reasons to back up the decision to take any trade. A win by any other nature, in my opinion can put the trader in a bad position going forward. When we plan the trade, and trade the plan, we can gain knowledge from what we did right, and use this information to help our trading in the future. If we simply guess or get lucky, we rarely understand why it was a great trade and don’t gain the body of knowledge that comes from that understanding. Trading like that is more akin to gambling and relies more on luck than skill and over the long-run doesn’t usually end well as I learned the hard way.
Conversely, we can lose the trade and still very much feel good about that same trade. The market can be both volatile and unpredictable, and sometimes, regardless of the excellent analysis we do, the trade simply loses. A loss of this nature doesn’t require any modification in the future, and is simply part of trading. Losing when you have done good analysis is just part of doing business as a trader. There are other times when losses shed new light into what you need to work on as a trader. Despite our best efforts, sometimes we make mistakes. Being able to spot these errors can help out immensely in the future. Sometimes only by losing do we really learn what is missing from our trading plan and market analysis. I would count both these types of losses as positive to the trader, while losing because we were lazy or simply guessing is negative.
As traders, we must be able to recognize the difference between good and bad wins & losses. Psychology plays a huge factor in our overall success as traders, and knowing that you made the right move during a loss counts for a lot, just as knowing you did the wrong thing in a win can help avoid bigger losses later. As with everything else in life, when luck runs out, we must rely on skill and trading forex can be a very humbling experience if we do not equip ourselves both with the experience not to beat ourselves up when it’s not our fault, and taking responsibility when we somehow win and made bad decisions.
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