It is the ability to accept the occasional trading loss that can be a key factor in whether or not you become a profitable trader. I am not saying trading losses are encouraged; but how you handle losses may significantly affect your degree of trading success.
Refusing to tolerate and properly handle trades that don’t work leads directly to trading errors. It is the inability to cope with the inevitable losing trade that causes traders to cut winning trades short, move stops in the middle of a trade, hold on to losing trades, average down, and fail to pull the trigger on sound trade setups.
Learning to accept and deal with trading loss may be just as important as making good trades.
Here are few steps you can take to survive and even thrive when suffering a loss:
Write down the trade: You need to learn from the loss (that is its value), so write it down. Include everything why you took the trade and emotional bias you were carrying when taking that trade.
Evaluate the trade: Once the trading day is over, go back to what you wrote and see what can be learned. Did you miss-read the market? Did you take the trade even though it didn’t meet your trade criteria? Or, was the trade setup valid; it just didn’t work out?
Learn from the Trade: Ask yourself, “What can I learn from this trade?” Is there an insight about market action that can be gained? Is there something about your trading behavior that needs to be addressed? Whatever it is, you have an occasion to grasp something new, and that is valuable!
Corrective action: Do you need to modify your trade setup? Is there a rule for personal discipline needed? Whatever you have learned, take immediate action.
Have Positive attitude: You always have a choice about attitude. You can accept the loss as an inevitable part of trading and be grateful that you can learn from it, or you can enter a negative, downward spiral of feeling bad, getting down on yourself, and making yourself feel even more miserable. Follow the constructive steps outlined here and stay above all of this.
Talk: We all need support. Talk to your trading buddy, mentor, partner or spouse. It helps to unload a bit and you may gain a different perspective.