Taking losses in trading represents the ultimate dilema that every trader faces. We hate incurring them for a variety of different reasons, mostly because of the loss of capital. But deep down, we also know that they are a very important part of becoming a successful trader. The key is to keep the losses small so they can help you become a successful trader as opposed to completely diminishing your trading account.
Like many traders, when you take your trading from paper trading to real money, there is a tendency to lose on a few trades in the beginning because of the mental leap required to adjust to the change. The added emotional distress of having real money on the line tends to cause us to stray from our proven trading plan a few times before we finally come back to our senses.
Unfortunately, what happens most of the time, is traders will take too large of a loss in the beginning because of their overconfidence developed from their success in paper trading and will put much more capital into one trade than their trading plan says to do. This either results in quitting or completely eliminating their trading capital.
Burberry Outlet Because of this, many traders never allow the process of losing to bring them to a place of winning. But how can small losses actually create the stepping stones for successful trading? To answer that question, lets look at a psychological term called “desensitization”. Wikipedia defines this term as the following:
“The diminished emotional responsiveness to a negative or aversive stimulus after repeated exposure to it.”
Burberry Bags Reaching a state of desensitization is a crucial stepping stone on any traders path to success because the lack of any kind of emotional response towards trading leads to a greater following of the proven trading plan. Once you can get to that place of following your proven trading plan without question, you are golden. Prepare yourself for financial freedom!
How do we get to this place of “desensitization” though? In short, get the first few SMALL losses out of the way. Now that doesn’t mean to take losing trades on purpose. It just means to accept the possibility of your first few, real money trades being small losses that will help take your trading to the next level.
Now the key word in this concept is ‘small’. It is vitally important to always keep any losses small. However, it is even more vital in the beginning when you make the leap from paper trading to real money. The reason is because with the probability of encountering a losing streak higher than usual, you don’t want a stream of losing trades to wipe out your entire account. The point of trading is to stay in the game and make money!
The few small losses you take in the beginning when you first trade real money work to desensitize you to the inevitable losses you will take in your trading career. The idea is to learn how to detach yourself from the outcome of the trade, as quickly as possible. So in reality, you’re not trying to make money, you’re trying to stick to your trading rules.
When you no longer have an emotional attachment to losses, you are then able to detach yourself from the outcome, and make trades based solely on your trading plan. Your ability to maintain discipline and make good trading decisions will no longer be affected by past losing trades. This is the ultimate freedom every trader should strive for.
So for the time being, put aside the tantalizing fantasy of making millions in the stock market. Instead, focus on desensitizing yourself to the trading process so that you will be able to stick to the trading rules that will ultimately bring you the fortune you seek. It is only when you reach this level of trading that accumulating wealth via the stock market will come.