28Nov8:36 pmEST

Stop Giving Away Your Power as a Person

“Remember that failure is an event, not a person.” -Zig Ziglar
If you cannot take losses, and especially numerous small losses, then you cannot trade over the long-run. That is pretty much my philosophy when it comes to the market, as losses are inevitable in the same way that even the best baseball hitters are successful only 30% of the time. Of course, we strive for a much higher win-rate than that in trading. But, without question, there will be times when trades simply go against us. And when that happens, for my style of trading the solution is to religiously cut losses to contain the size of them, and develop amnesia as I move on to the next trade. My Facebook short, which was a loss in the 4-6% range, now pales in comparison to the big, 15-20% wins I caught in UGAZ ERY around the same time. In theory, it all sounds so simple--Keep losses small and play for the bigger wins. But, in practice, I still see too many traders attaching their personal worth to the trades, especially when the losses come in consecutive fashion. When the losses start to mount up, even the small losses, they drift away from disciplined style and essentially go "on tilt," or become off-balance emotionally, figuring "well, the disciplined way does not work that well, so I might as well play for home runs every single time with no stop-loss discipline." In reality, that drift and the process of going on tilt, in and of itself, becomes the root cause of the trader's blow-up. As they say in the poker world, when the suckers go on tilt, it is what the pro's count on, and the casinos, too, in order to turn a profit. The fact of the matter is that failure is an event, not a person. And that becomes even more pronounced in the stock market, where "failures" as a trader are a foregone conclusion. Like most everything else in life, though, the choice is yours whether to wallow in your own misery and dig yourself a deeper hole, or instead develop a healthy case of amnesia after cutting the contained loss. If you choose to not give your power and self-worth away, as a person, to a stock ticker symbol/chart/HFT/piece of paper, you will avoid the unhealthy and toxic emotional roller coaster which usually ends with traders searching for a new line of work. Avoiding toxic situations is important in all aspects of life. And the stock market is no different. Keep cutting those losses (making sure you entered the trade with a sound thesis in the first place), and eventually you will see the profits outweigh the losses in the same way the casino eventually sends the gambler on a hot streak at the blackjack table home with his pockets turned inside-out.

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