Lose Well to Win Big


Date: 7/8/2021
Author: Chris Hood


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.

No one likes losing.

I certainly don’t enjoy when my well-planned trades go wrong, but it’s inevitable in a game of probabilities.

No matter what the technical indicators say, how strong the set-up, or what you believe about the stock, you’re going to lose some of your trades.

Professionals know this.

They’ve come to terms with it, and that’s why they’re profitable.

My job as a trading coach often involves much more about psychology than trade technique – charting, technical analysis, and trading rules are easy to fix.

Changing a person’s mindset is much more difficult.

Today I’m giving you three tips to help you deal with losses – tips to help you “get your mind right” and pull you through the hard times.

Psychologists call this cognitive reframing, and it’s essential if you plan to trade for the long term.


Tip #1 – Always assume a 100% loss whenever you place a trade.

Think about it, before you click the send button and put in your order, you have to be both capable and comfortable losing all of that money.

This is key because it can and will happen.

If the potential loss to your account makes you hesitant or anxious, then you have oversized your position.

It’s that simple.

Everyone has a different tolerance for risk. A bit of introspection will let you know when your allocation is too high.

If you haven’t placed the order, then reduce the position size. For example, use fewer contracts, a smaller spread, or some other lower-cost strategy.

You’ve already placed the trade and are losing sleep over it?

Jot it down in your journal and make sure it doesn’t happen again.

If you expect to lose it all and only lose 50%, consider it a 50% win.


Tip #2 – Several losses in a row do not mean your system is broken.

Every trader will have a string of losses at some point; it’s just the nature of probabilities. This is true even if your win rates are high.

Think about it.

A win rate of 80% means that out of 100 trades, you’ll lose on 20.

Though it isn’t likely, you could lose 15 or 20 trades in a row and still not violate that win rate. This is because win rates only play out over long periods.

Ask yourself this:

If you took 10 losses in a row, would it wipe out your account?

If so, then you need to use smaller positions, especially when trading in extremely choppy markets.

Plan for it, expect it, and you won’t be devastated when it happens.


Tip #3 – Always learn from your losing trades.

Each time you take a loss, it’s YOUR fault.

That’s right, you did something wrong.

The market doesn’t even know you exist, so it cannot ‘go against you.’ A losing trade just means that you were in the wrong place at the wrong time.

Consider these questions:

Who chose the stock?

Who identified the set-up?

Who placed the trade?

Each of these things was your decision and your action. You can’t blame anyone else. Even if you were handed the trade by someone else, you chose to listen to them and take the risk.

Rather than lamenting losses, look for the lessons they teach you.

Was the stock inappropriate for your trade? Did you neglect to follow your entry rules? Was the duration wrong?

If you analyze your losers, you’ll nearly always find a problem you can fix. Then, use the information to refine your process and rules.

Make the adjustment and get back in the game.

Most traders fail because they will not put in the effort to develop their skills and control their emotions.

Don’t be one of the wash-outs.

I’ve been training in martial arts for so long I can’t help but use the analogy because jiu-jitsu and trading have so much in common.

Master Chris Haueter put it so well when he said:

“It’s not who’s good, it’s who’s left.

It’s hours on the mat.

If you put in that time, natural athlete or not, you’ll be a black belt.

You’re going to be somewhere in ten years, why not be a black belt too? You just can’t quit.”

The only true losing strategy is giving up before you get it right.

Stay at it.

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