| Most of us go to school from grades one to twelve, | | | | to accept losing. In trading, we must expect and |
| and some of us are fortunate enough to attend | | | | embrace both winning and losing trades. Losing trades |
| universities for another four to five years. During this | | | | are part of trading, and if you can't accept the concept |
| time, it is hardwired into our brains that in order to | | | | of losing, then you should think of it as the cost of |
| become a successful student, we must obtain a grade | | | | doing business. |
| of 80% or better. Basically, more than 8 out of 10 | | | | Let's play a coin game. I will flip a coin, and then you call |
| times, we are correct in our understanding of new | | | | out whether it is heads or tails. If the coin is heads, and |
| concepts, or correct in solving problems. This works | | | | you called out tails, you will lose $1. If the coin is tails, |
| really well in education or in a controlled environment; | | | | and you called tails, you will win $2. If the coin is heads |
| however, in life, it is impossible to always be correct 8 | | | | and you call heads, you will win $2. Basically, if you are |
| out of 10 times. Even Warren Buffett or George Soros | | | | wrong, you will lose $1, and if you are correct, you will |
| can't claim that they are profitable 8 out of 10 times in | | | | win $2 each time. Would you continue to play this |
| all of their investments. Have you ever seen a baseball | | | | game if you first started out with 5 consecutive losing |
| player with 0.800 batting average? | | | | calls? Believe it or not, some people would stop playing |
| Because all of us went to school, it has been ingrained | | | | after 5 consecutive losing calls. Most people |
| into our brains with the urge to be correct in order to | | | | understand that you will make money in the long run |
| be successful. This habit of being right is causing us to | | | | playing this game; however, it is the stress of losing |
| fail in trading. We want eight out of ten trades to be | | | | that causes them to quit. Alternatively, why were you |
| winners. It is the need to be more right than wrong that | | | | excited when you called out at each coin toss? |
| is causing us to lose. We only want to win trades and | | | | It should be a mundane game without any emotions |
| avoid losing trades at all costs by trading without a | | | | since you are guaranteed to win in the long run, |
| stop loss. We lie to ourselves that a losing trade is not | | | | regardless of the outcome of several losing tosses. |
| a loss until we actually close the trade. By holding onto | | | | Now imagine this game is applied to Forex trading: |
| a losing position and hoping that it will come back one | | | | each time you have a losing trade, you will lose $100, |
| day, we have failed at trading. This is because we | | | | but each time you have a wining trade, you will win |
| don't accept losing trades. | | | | $200. The odds are in your favor, and not the broker's. |
| Once upon a time, when we were kids, we would only | | | | In summary, it is your emotions towards both winning |
| play games that we knew we could win. When we | | | | and losing trades that are causing you to fail in trading. |
| lost, we would cry or force other kids to play games | | | | To be successful in trading, either learn to become an |
| that we were good at. As children, we were unable to | | | | emotionless trader, or use automated trading software, |
| accept losing, and as adults, some of us continue not | | | | which does not have emotions. |