Taking a loss can set you free?

The aspect of posting in the psychology forum - obvious or not (I need a cape if I'm going to be a super hero) - is therapy for the poster as much as it is for people who have yet to get "there" in their own trading lives.

So while some of it may come off as obvious, just like in therapy, the verbalization of emotions and the psyche of trading allows one to become more cohesive. If, at the same time, a person more "green" can be helped in the process, all the better.

Hence my post.

Now if you'll excuse me, I'll be off to my "Gold: The New Precious Metal For You To Invest In" speech.
 
Quote from fearless9:

You are never fundamentally right or wrong about the market and the market is never rational or irrational.
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Most of F9's post was confrontational I do agree with this statement. I try to not trade on fundamentals unless the information was completely unexpected and unpredicted...Sept 11th would be a good example. Otherwise you can pretty much assume that anything that is known, or is perceived about the market's future is ALREADY reflected in the price.

This is why we see some stocks trading up this week on negative earnings. The "feeling" of the collective traders going into earnings was that the news would be bad so the price had already been driven down on this considerably. Now with some earnings coming out not as bad as people had expected and some even beating expectations some of this fear has been released pushing the market up instead of down. This is the way I see it anyway.

I think it's the same way with the feeling of relief you have once you close the losing position. While you are in the trade and in the negative the market can still move against you even more which creates fear. Once you close the trade the loss is still there but the cause for fear is gone. Imagine being robbed at gun point. You are probably fearing for your life and just want to robber gone. So you give him your wallet taking a loss and he runs away. You are no longer in fear for your life but are now angry at the loss.
 
Quote from Maverickz:


I think it's the same way with the feeling of relief you have once you close the losing position. While you are in the trade and in the negative the market can still move against you even more which creates fear. Once you close the trade the loss is still there but the cause for fear is gone. Imagine being robbed at gun point. You are probably fearing for your life and just want to robber gone. So you give him your wallet taking a loss and he runs away. You are no longer in fear for your life but are now angry at the loss.
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An absolutely excellent response. Cheers.
 
OP, good thread.

i have found that, in general, i tend to hold my losers too long. check your stats on time in trade. i think you'll see an interesting correlation (not cause/effect) that shows that your biggest losers were also your longest held trades.
 
Quote from Ivanovich:

One thing I've noticed in my not-so-short but not-so-long trading time is the amount of angst holding a losing position can bring you. It aggrivates the hell out of me, especially when I feel I'm fundamentally right, but the irrationality of the market decides otherwise.
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Therein lies your problem.
Your EGO is too big for TRADING.

YOU . . . feel that YOU are "fundamentally" correct ( whatever that means ) and YOU maintain that the market is "irrational" ( whatever that means ).

The issue is that none of the above:

1.) Your perception that YOU are "fundamentally" correct

or

2.) That YOUR perception of the market being "irrational"

are valuable in the process of TRADING. If you were to accept the fact that the market is right, and that fundamentals have really no value when it comes to TRADING, you won't feel like a fish swimming up river all of the time. As a result, it will be MUCH EASIER to let go of a losing trade.

Unfortunately, you make it very difficult for yourself because you continue to embrace two very dangerous assumptions about what the market places emphasis on.

Get rid of those two ( very bad ) assumptions, and you will be able to LET GO OF LOSERS a lot easier.

:)
 
On another similar note . . .

The market allows you to constantly "test" it.

I used to work for PTJ back in the mid-80's and he would constantly "test" the market to see if he was RIGHT. If he wasn't RIGHT, he would get out. If he put a trade on for a reason and that reason no longer existed, he got out. I watched him do this repeatedly, and even with size. He would look at various chart patterns, analogs, etc. If he thought that crude oil was moving a lot like a dollar index chart, he would put on a trade to take advantage of his hypothesis. But the moment the crude varied from the analog that he had come across, he was out of the trade.

You sound like you hang onto your trades far too long.
Most likely, it is because you are not using a technical pattern or technical analysis as the basis for your trading methodology. As a result, you wind-up rationalizing why you continue to stay with the position; looking at "fundamentals", etc. That is where your EGO comes in, and plays all sorts of "games" that prevents you from taking the loss and moving on.

Get technical, and you'll get rid of your EGO.
You'll be glad you did!
:cool:
 
Taking a profit can set you free. Make serial profits as you trade your market (CL, YM, ES, etc) because this is the process of setting yourself free; each day you add one more day of net profit to all previous days of net profit. This is what begins to set you free.

This alone is the prize which sets the independent individual trader free. Making yourself free is through making yourself rich.

Here is the error affecting all traders at ET. If you're 'trading for a living' you are ipso facto eating your seedcorn; all your profits are needed to back your development of a bigger position with which to trade. This has to assume you have a very accurate methodology. Now you must combine the theoretical model with the action model version implemented through the learned skill of mastering the pace of the market and overcoming the slippage you can get in the B/A spread of your market. CL is a good example of a wide B/A spread at many moments of high pace wrecking the play of an amateur if not frightening the amateur away from CL for good.

It is correct though that there is only one successful aim in trading: to set yourself free.
:)
 
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