The more I involve myself with trader education, the more I realise that a key error on the part of most traders is their failure to truly understand and accept trade loss.
I see it all the time in reader emails – "WTF! This trade lost! How could it have lost?"
We all understand the theory of the probabilistic nature of the markets.
We know that we can't win on every single trade.
We know that we'll lose on a good percentage of them.
We know that this is a game for the "long term".
But there's a real disconnect between what we know to be true and what we are emotionally able to accept as true.
There is a concept in poker which I think we should adopt in trading. It's called the BAD BEAT!
A bad beat occurs when you play a statistically strong hand in the correct way, but get beaten by a player with a weak hand who made a dumb call, or by a player with an even stronger hand.
In trading, a bad beat is a trade which meets your setup criteria and has a good reward:risk ratio, which is managed correctly in accordance with your plan but still loses anyway. Or one that would have profited but didn't fill on the entry order. Real losses… or lost opportunity… despite playing the game in the statistically correct way.
A bad beat sucks!
But you were right to take it.
It's just part of the game.
If you're getting angry at a poor trading decision then that's absolutely fine. Remove yourself from the markets so that you can cause no further harm. And learn from it.
But if you're getting angry at a good trading decision that loses, to the point where it's impacting upon the mindset that you take into the following trades, then you've got a problem. You haven't completely accepted the concept of the bad beat being a normal part of trading.
It's not enough to rationally know that not every trade will be a winner. You've got to know it at some deeper subconscious level.
You've got to experience these losses again and again until you finally get that they're absolutely normal. And that you finally believe that it's ok to take these losses, because you've seen again and again how you can overcome them and claw your way back to new equity highs.
Drop position size or return to sim UNTIL you've seen and experienced enough losers and missed opportunity to know that this is just part of the game… and that the next time you take a similar opportunity it will likely offer more than enough to make up for the bad beat.
Individual trade results do NOT matter.
Win, lose or draw… it's totally irrelevant.
What matters is the combination of your win% and win/loss size ratio, over a longer-term sample of trades (20+).
In terms of worrying about wins or losses… that is where you should be focusing… on your longer-term stats.
Not on your individual bad beats!