• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

Losing Trades Are a Sign of Superior Trading

If you don't have a steady diet of losing trades you probably aren't trading at optimal levels.
By JAMES "REV SHARK" DEPORRE
Sep 15, 2018 | 10:50 AM EDT
Stocks quotes in this article: TLRY

For traders one of the worst characteristics of social media, and the internet in general, is that they promote the perception that making losing trades is shameful and a sign of a poor trade. CNBC and Twitter are loaded with 'experts' that act like they never have a losing trade. These people want to sell themselves as experts and they think the best way to do that is to pretend that they are always correct. It is highly unrealistic but it does fool enough people to make it worthwhile for the charlatans.

The reality is that traders that focus too much on avoiding losing trades tend to produce poorer results. If you don't lose money you will never have big returns. The only way to produce exceptional returns is to take higher levels of risk, and when you take more risk the chances of a losing trade are greater.

The easiest way to avoid losing money is to focus on trading the most conservative and slowest moving stocks. It is like only betting on the heaviest favorite in a horse race. Your chances of being right and winning a small amount of money are high but the overall results aren't as likely to be as good as those that embrace more risk on a selective basis.

If you don't have a steady diet of losing trades you probably aren't trading at optimal levels. That may seem counter-intuitive because good traders should consistently find good trades but you have to recognize that the market will always have an element of luck and uncertainty. If you only take those trades that are a 'sure thing', most of those trades will produce minimal returns since there is no risk and you will often find out that there really is no sure thing.

When you enter a trade you have to embrace the likelihood that you will be wrong and will lose money. Once you understand your fallibility it becomes part of the process and allows you to be more aggressive in pursing the best trades. When you see big potential but forego it because there is some risk of loss then you are sure to have mediocre returns.

Rather than say to yourself, "I'm not going to take that trade because it is too risky and I might be wrong," the better approach is to think, "This is a high risk trade and I might be wrong but I can manage a loss and the odds of a positive outcome are good." When you avoid a trade simply because you hate to have a loss you will also forego the trades with the best potential.

This past week Tilray (TLRY) provided a very good example of this conundrum. Many traders avoided TLRY because they viewed it as too risky and too uncertain. Those that did take a trade, long or short, did so because they felt that even if they are wrong they can take a loss without suffering too much damage. They knew they had a high risk of being wrong but what was important was the ability to control the loss if they were wrong. It might seem crazy to buy a stock that has questionable fundamental value but is going parabolic, but if you willing to risk being wrong the potential gain was dramatic.

The key to trading like this is the suppression of ego. If you don't see a loss as a shameful event that could never be admitted to publicly then you look at trades in a different way. A loss is just part of the process and when you stop trying so hard to avoid them you can enter more trades with more upside potential.

If you aren't experiencing losses on a regularly basis you probably aren't being aggressive enough. Losses are a necessary cost of business and if you have to allocate a certain amount of money toward them in order to grow and prosper.

When losing trades are just part of your regular routine you will be a better trader.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, James DePorre had no position in the securities mentioned.

TAGS: Investing

More from Investing

Amid Dreary Trading, a Slim Glimmer of Hope

James "Rev Shark" DePorre
Sep 27, 2023 4:30 PM EDT

Meta swings midday and the bulls lose footing, but the small caps were a bright spot.

NextEra Energy Is Suffering Through a Power Outage

Bruce Kamich
Sep 27, 2023 2:24 PM EDT

What do the charts suggest for price targets?

Here's How to Engineer a Trade in Jacobs

Bruce Kamich
Sep 27, 2023 1:11 PM EDT

The charts say this price is where to add on J.

Here's Why Buyers May Want to Hold Off for a Bit

James "Rev Shark" DePorre
Sep 27, 2023 11:30 AM EDT

The chance of a government shutdown is keeping traders on the sidelines right now.

Anxiety Creeps Back Into the Markets, but I Think Outright Panic Could Lie Ahead

Bret Jensen
Sep 27, 2023 11:00 AM EDT

Volatility is picking up, but I believe it could become much more intense in the first half of next year.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:43 AM EDT BRUCE KAMICH

    Bob Farrell's 10 Rules of Investing

    I always take a hard copy book to read when I trav...
  • 12:20 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading in Multiple Time Frames
  • 10:24 AM EDT BRUCE KAMICH

    This Could Get Messy

    A number of key stocks are getting close to import...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login