“I just want to breakeven”

“I just need to recover my last loss”

“I just need one move in my direction and I will be in profit”

“Let me widen my stop loss I’m sure the price will turn in my favor”

How about these lines?

“I should have stuck to my strategy/my rules”

“I should to have got out earlier with little losses and instead I stuck around”

“I should have closed my trades than choosing to go positional…big mistake”

Sounds familiar? The ongoing chatter in a loss making mind. Sometimes it’s there during the trade and more often, after a loss making day!

As much as we credit ourselves as rational beings capable of making sound decisions, literature proves otherwise. We are just a Rider on the Elephant, and if and when there is a disagreement the Elephant usually wins.

But then in the real world, sometimes it's not just the rider and the elephant, it could also be the terrain, the skills of the rider, or the elephant itself, and a whole lot of other factors.

This is an introductory post of our month long exploration on dealing with losses, we will look at the genesis of losses and what is it that we can do manage, minimize and make peace with it.

Losses in trading can happen due to a lot of reasons, sometimes they can be point one specific focus area like emotions etc? but most often they are combinatorial. It could be emotions plus an infra issue. or execution plus a trading strategy issue.

To look at losses, and to be really at peace with it, you need to isolate the causes, you can make peace with your losses only and only if you are damn sure that it’s a part of your system, and adheres to your trading system’s win/loss rate and size.

Its like this, you have a headache, and you wonder why do I have this headache - on a spectrum of causes, on one end it could be dehydration and on the other extreme it could be a brain tumor. Now for you to be at peace and ignore the headache you need to be damn sure it’s only dehydration and not a malignant brain tumor. (Sorry if that sounds morbid, losses can be equally bad)

Dehydration in trading will be a “loss that is part of the trading plan” and Brain tumor will be everything else.

In the coming weeks Kavitha and I will spend some time on strategies, methods and models to manage losses both behaviorally and financially.