11 Jun 2021, 18:16

My first investing coach told me that I would definitely make a loss in the stock market. “No way!” I thought. Aren’t you going to teach me to become a great investor? Little did I know he was right. Even great traders make losses. No matter how good you are as a investor, no investment strategy is 100% right all the time! It is how you overcome, react and response to the loss that makes you a great investor.

One of the most frustrating points you will face on this investment journey is that you will face losing trades even if you stick closely to whichever strategies that you had been taught. As a novice starting out, this would cause you to lose faith and question whether you are destined to become rich from your investments.

However, it is often said, “whatever does not kill you, makes you stronger”. It is through experiencing such losses that you have a chance to mature and grow as an investor. It is through these losses, you will have a chance to understand the stock market better and stand you in greater stead to becoming a profitable investor in the future.

But first, how would you overcome your initial losses? Remember that it is how you react to circumstances or obstacles that determine your eventual success as an investor.

If there is one advice I would give to losing traders, here is it:

What? Am I telling you to accept your losses?

Well, yes and no.

Let me address the “yes” first. There are times when no matter how well you stick to your investment rules, you will still make a loss. In such cases, it is alright to take the loss. If you had researched and found that your investment rules had resulted in more good trades than bad ones in the past, then you had made the right move. Even the best football teams do not win all their matches, same goes for trading.

In this case, firstly, embrace and accept the loss. Since you are unable to dictate where stock prices would go, gentle acceptance of your fate would help to calm you and not get entangled in a myriad of emotions. Do not let yourself tell negative stories about your trading skills. Acceptance of your loss allows you to move on. At the end of the day, investing is a game of statistics, if your investment strategies results in more wins than losses for you, then accept this temporary loss and just move on to your next winning trade. Eventually, the wins would come.

Let me, now, address the “no”. Whenever I made a loss in the past, I would still examine my trades and strategies. This is called “fine-tuning”. I would examine whether my strategies are good enough? Are there new conditions that I discovered in this losing trade that I must take note of so that I would not encounter another such losing trade in the future? If the answer is “no” to the above questions and I had not violated any trading rules, then I knew I had made the right trade. However, if I discovered something new that I can add to my rules, this makes it a good lesson for me to learn from. Remember that it is from these frustrations that I can make my trading rules more robust.  

Again, learn to accept the loss. Embrace it and be grateful that you have something to learn from it. This will help you become a smarter investor in the future. Everyone grows up from their failures.

 

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