Nobody likes to be a loser, but bearing losses well is required in order to be a winner. Just ask some of the most prolific hedge fund managers ever. George Soros once said (I’m paraphrasing), it’s not about being right, it’s about how much you make when you’re right versus what you lose when you’re wrong.
Stanley Druckenmiller, Soros’ highly successful pupil, once said in an interview that he estimated he was right 60% of the time. This means that it is wrong 40% of the time. Legendary macro billionaire Paul Tudor Jones once said he’s wrong about how often he’s right, but he’s also echoed Soros by saying that what matters most is how much he makes to winners when he’s right versus how much he loses. when you are wrong.
This means that some of the world’s most successful hedge fund managers are often wrong. And they don’t care because it’s part of the game and not what really matters. What they care about is managing the risks in their ideas and looking for asymmetry between their winning and losing ideas.
Accepting loss is of course easier said than done since loss aversion is human nature, so for many who suffer losses frequently it can be a coarse pill to swallow. But you should embrace it, in fact, because it’s just part of the game and what will keep you in the game in the long run. Moreover, the faster an idea reaches its stopping point, the faster you can move on to the next potential winner.
Not all losses are created equal. What should raise red flags is when you constantly incur losses, or incur losses that are large compared to your gains. The loss can be a result of market conditions that are not conducive to Trading style/ strategy, or it could be something deeper indicating that you are not consistently following your trading rules.
When you’re experiencing a losing period (regression), take a closer look at what you’re doing. Examine your trade history, go through your diary, and see if you’re following your trading plan or deviating. In the event of a deviation, you need to know what you need to do to get back on the right track. This is when the loss is unacceptable, because it is self-made.
However, if you follow your plan, a market function may be unfavorable to your strategy, and while you must be flexible to adapt to market conditions, a robust strategy that has been proven over the course of multiple cycles must emerge. The key here is to be consistent and see the strategy through the ups and downs.
- The best at work understand that taking losses is part of the game and don’t focus on being right all the time
- What matters most is managing the risk in winning ideas versus losing ideas and moving forward with unequal win/loss ratios.
- However, not all losses are created equal; You have to understand when a loss is a function of market conditions and when it is a function of moving away from your trading plan
Resources for forex traders
Whether you are a new or experienced trader, we have many resources available to help you; tracking indicator Trader moralemy quarter Trading forecastAnalytical and educational Webinars held daily, Trading guides To help you improve trading performance, and one specifically for those who are New to forex.
— By Paul Robinson, Market Analyst
You can follow Paul on Twitter at Tweet embed