If you read the posts of active traders on Twitter and other social media sites it is likely that you would think that most traders very seldom lose money. When traders do admit to their losses, they are small and inconsequential. It is easy to understand the inclination to make it sound as though we only make great trades. It is human nature to be ashamed of failure, and losing money on a trade is a sure sign of failure.
While doing the best we can to avoid losses is obviously a good idea, it can greatly handicap our results if we go too far in that direction. You cannot be a great trader is you don't suffer losses on a regular basis. Losses are simply a function of the trading process and are not an indication of failure.
One of necessary steps in the evolution of profession traders is to realize that losing trades are routine. Every style and approach will result in failed traders. Some traders may find that less than half of their trades are successful, but they make enough profits on the minority of winning trades to more than offset the losers.
Traders must realize that there is no sure thing in the stock market, and when there is no sure thing then the smart approach is to admit our mistakes quickly, cut our losses and move on. That sounds simple, but it is extremely difficult for many traders to do. They don't want to admit that their carefully planned trades and all their research resulted in a mistake. They become emotionally attached to the outcome, and that undermines discipline.
When you enter trades with the clear understanding that it may not work then there is no shame in taking the loss and moving on. You actually increase your chances of success when you take on more trades because you increase the possibility that you'll have good fortune.
There is a very large element of luck involved in trading, and what we need to do quite often is manage that luck. We will have good luck as well as bad luck and we want to put ourselves in a position to encounter more good luck. When we are too rigid in entering trades because we fear minor losses we will never make a gain. As hockey great Wayne Gretzky once said, "You miss 100% of the shots that you don't take."
I found that one of my must common mistakes in my trading was to be too quick to cut a trade that doesn't work immediately. I want to get that "mistake" off my screen and never give the trade a real chance. That isn't a bad approach, but when you are too quick to take very small gains because you fear a bigger one you will miss out quite often.
Perfectionism is very dangerous for traders because when we try to design a system that avoids all losses we end up taking very few trades. Being underinvested is what dooms many traders to under-performance. Some of my best trades are those that I don't feel very confident about at first, but I took them because I was not afraid of taking a loss if they didn't perform.
Losses are simply part of the trading process and do not reflect on your overall ability as a trader. When you understand and embrace that concept, you are on your way to superior performance.