June 01, 2011 at 11:26 am | | Comments 1

Are You Willing to Lose, Part 1

schwager-new-market-wizardsIn Jack Schwager’s classic The New Market Wizards, Mark Ritchie delivers a very simple but profound statement on the subject of losing:

“…I don’t think you can make money unless you’re willing to lose it…my willingness to lose is fundamental to my ability to make money in the markets.”

Losing is a part of trading, there’s no getting around it and everyone does it…but not the same way.  The best traders lose like a winner.

Too many traders fear losing, and to be honest I’m often guilty of it too.  Sometimes it’s a healthy fear and at other times a limiting fear, so it’s an ongoing issue each of us face.

The wrong kind of fear keeps us on our heels.  It might cause us to dart out of good trades too quickly, cutting the legs off our winning trades (get it, so they can’t run?).  Or it may leave us sidelined, unwilling to participate even when we sense the presence of opportunity.  Sometimes we respond to our fear by trading too small, or simply by becoming far too stressed over trades which are small enough to be insignificant.

For example, you know that when you’re trading small enough that a trade’s outcome (win or lose) will result in virtually no change in your account value, and yet you’re fretting over it, it’s a clear signal that your fear is too great and you’re in no shape to be trading until you get a handle on it.  I can say that because I’m familiar with the feeling!

Your Trading, Defined

The title of this post isn’t “Do You Want to Lose?”  It’s “Are You Willing to Lose?”  There’s a big difference, so let me be clear.  This isn’t an approach where we face the markets each day hoping to shrink our account.  Rather, it’s a mindset whereby we play only with that which we’re able to lose, and nothing more.  It’s a mentality where we trade in such a way that we evaluate our risk, do our best to contain it, and then move forward boldly.  We aren’t held back by worry over what might happen.

Tomorrow we’ll wrap this up with Part 2, but until then, let me give you a question to consider:

How would you characterize your own approach…are you defined more by your confidence or by your anxiety?

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

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  1. From Are You Willing to Lose, Part 2 | on Jun 2, 2011

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