How do we "learn" to take losses and to follow our stop loss?

[babymush]

Hi all,

Anyone has any ideas how we can train ourselves to take losses and to follow our stoploss?

1 idea I have would be to set aside a portion of our profits everymonth say 20% or so, and do not even think of that amount as profit.

Say we made $1000 last month, we will assume and think that we only made $800 and the $200 is as a buffer for taking losses.

I personally find it very hard to take losses and admit that I am wrong which I know will lead to my downfall in the near future.

Please suggest ways we can train ourself to be more relax in taking losses - All ideas are welcomed -

Paper trading is not a way as when real money comes into the picture, the whole story changes.
Starting small may also not be the solution as when we scale up and see the absolute amount of the loss increasing, it will also affect our feelings.

Thank you in advance.

 

[TheBramble]

Please suggest ways we can train ourself to be more relax in taking losses - All ideas are welcomed.

Set your loss (risk) to amount that you don't even have to think about. Whatever that might currently be for you personally. Like filling your car with petrol or paying for a meal in a restaurant. It's just a living expense. You need to be feeling that way about your max loss per trade too.

 

[ardhill]

Well said Bramble, take the emotional pressure out of it.

 

[DaveJB]

Your loss has to be set at a sensible level - I agree with Bramble that a loss set at what we consider a run of the mill level will be easier to action, but if your loss is set at a price for a sensible reason then you should action it full stop.

Look, you set that stop because when considering the entry you decided 'at £xxx/$xxx' you would be informed by the price that you had in fact got the 'up or down' decision wrong. It's that simple - is the price going up or down, you say 'up' perhaps.
Right, so if the price is going up, and it drops to £/$nnnn then I'll know I was wrong about it. (This is where you set the stop).
So exit. You got it wrong. If you do not exit then you are stating, loud and clear, that your analysis when you entered was wrong, not only because you got the direction wrong, but you somehow even managed to miscaclulate the point (or so your hesitation suggests) where you'd know you got it wrong.

The only way to improve on this is to do a really thorough job - find a shotgun, aim at a foot, pull the trigger. Look on the bright side - with your luck you'll miss.

If you are getting it all wrong, then get out. You do lose on the costs - in spreads I for one don't consider this trivial... SBing US shares I start out maybe 8 or 9 points down on a $25 stock, it is not unusual for the chart to go the way I figure and I'm at best even... you CAN die from a 1000 small cuts, you lose £8 on every trade effectively, so exiting at a small loss soon builds up. The thing is you have to do it, or you'll lose even more.

If your stops are broken and you can't exit, then it's simple - look back and decide if the stop you set was a good one or not... did it minimise losses, or are you bad at setting stops? If your stops are okay, then action them. If your stops are rubbish and ought to be ignored then stop trading and figure out a better way to set stops.

 

[limey]

Hello babymush
taking losses is part of the business just like taking profits they are unavoidable.Losses also shouldn't be a problem if you manage them and plan for them,as you already know you can have twice as many losses as winners but still come out on top if you manage your losses.

It should not be about whether you are right or not but about making money,it took me quite a while to learn how to leave my ego behind while trading and would hang on to loosing positions because I could not admit I was wrong.

You have admitted that this is your problem at the moment which is half the battle won,from what I have seen so far from these forums there are a lot of very experienced people here and hope you get a good response to your thread.

Good luck

 

[RUDEBOY]

Scaling up should not be a problem, as long as you are always applying the same ratio's to your GROWING amount of capital.

 

[donaldduke]

Anyone has any ideas how we can train ourselves to take losses and to follow our stoploss?

How about developing a trading plan that has been backtested and maybe forward tested
too.

Then if you aim to follow your plan rather than make money taking losses should be quite
easy to do.

 

[cj12]

If one cant take a small losses, you should not be in the game. I should know I have taken heavy losses. all in the past.,still take plenty of losses but they are small.now. it makes a big difference.Rremember you can loss 6 out of 10 trades and make money form this game.

What i find helps lets say you trade 6 lots when the market moves 3 to 5 ticks sell half and let the other half run.to some sort of overbought/resistance .


sun

 

[dbphoenix]

How about developing a trading plan that has been backtested and maybe forward tested too.

Then if you aim to follow your plan rather than make money taking losses should be quite easy to do.

Best answer so far . . .

 

[TheBramble]

How about developing a trading plan that has been backtested and maybe forward tested
too.

The 'benefits' of backtesting are limited in my experience. Possibly useful for confirming what you may want to do today/this week, but little more. The only way to reliably forward test is to, well, trade actually. Especially if you lean to Price & Volume, LII, T&S.

And for trading plans that attempt to make an MBA out of it - well, not particularly useful. Entry/exit criteria & setups, Risk & Money Management is all you need. The trading execution is the thing.

The problem BM might be faced with even with a 'perfectly' backtested system is that when it starts to fail - sticking to plan or no, the stoploss issue is there - staring him in the face. Which is why he asked to address that specific issue for him.

Then if you aim to follow your plan rather than make money taking losses should be quite
easy to do.

'Can' be good advice except for those who are a little on the freaky or analysis-paralysis side and then the plan becomes the object of attention rather than the trade. Which can lead to constant tweaking and subsequent lack of attention on the market - which isn't where you want to be.

To reiterate and focus on the original question: Keep your max loss per trade small enough for you to not to make it an issue for you when you're in the trade. Only your exit criteria count then.

 

[Tuffty]

Looks like you're going down the learning method as I used i.e. loose an amount of money that really hurts, then you'll learn to act on stop loss points. Worked for me, never missed a stop loss since. If I had known of a different learning method I may not have learnt the lesson properly.

 

[Salty Gibbon]

When your stop loss is hit you should not consider that as a loss.

It is simply a direct cost of trading.

You cannot expect to make profits without incurring direct costs and other overheads.

The analogy with a regular business is Sales is to Cost of Sales as Trading Profits is to Stop Loss Costs.

So, a properly placed stop loss should not be seen as a loss but as a necessary cost of doing business.

If you do not place stops or ignore mental stops then I would say any adverse results resulting from that should be itemised as extraordinary trading losses.

Anyone who cannot "take" a stop loss must by definition be expecting a 100% positive result and therefore living in Dreamland, Disneyland or with Alice in Wonderland - but preferably not with Michael Jackson in Neverland.

 

[JumpOff]

Here's an interesting exercise. Look at one of your bigger losses. I'll bet it went something like this:

===========start dramatization
Ok, I'm in, now lets see the price take off.
Oh- well its not going up like I thought, but it's not going down either...
So Far, so good....
Hmmnnn, now I'm in the red a tad, - but hey you have to give the market room to work!
Gawd, it's still drifting down, should I get out?
No! That's what the stop loss is for. I have to give this trade time to work..
There, it's turned and going back up. I'm almost even again, - now we're talking...
Hey alright, there a couple of pips,
Uh oh, back a break even, well - not to worry.
Aaah, what happened? That was fast.
Uh oh, almost at my stop, but look the MACD/RSI/CCI/whatever is starting to turn..
I'll just move my stop a couple of pips to give it room to work.

(moves stop)
###
(goes out to check different time frame chart)

Oh - well that *was* a sloppy entry, but my instincts are right.
So really, the price is probably going to go against me another 10 pips before it turns.
Let's see, I'm already down X, so if I get out now, I have to make this back,
++plus I've got the new trade entry costs too.
Might as well stay in and adjust the stop to reality.
Yep - there goes the price against me, just like I thought -
so the turn should happen in the next pip or two.
Yes. It's going flat, now the turn, (please now the turn! Bites thumb)
No, it's still flat.
Repeats from ###

Favorite swear words spewing now...
How did I let this get against me so.
Well, in for a penny, in for a pound. Some people trade without any stops at all.
Trading is supposed to be relaxing!
Let's just take this D*mn stop out of the way and see what happens.
What goes down must come back up.
(bites other thumbnail off)
(waits another 5 minutes)

Sheeeeiittt! Who knew the bottom would fall out?
Sheeeeiittt!
(Frantically click on the close position button..)
Sheeeeiittt!
===================End dramatization=======
Ok - so you can tell I've been there, done that. If you are smiling and nodding now, you've been there too. So here is the exercise. Whats the smallest stop your system will take. I mean 1 pip, maybe 2. So add this up.
2 pips + spread + Commission = minimum entry cost.

Now take your biggest stupidest stop loss and divide it by the minimum cost. It doesn't pay to stay in a losing trade! You could have been out on the side lines, watching the price go against you some more and *then* picking a better entry. Or if you are on the sidelines, it might even occur to you that you were dead wrong and you should join the party and enter from the other side.

When you get serious about really tight stops, you tend to get serious about picking better entry points too...

JO
(Be careful about taking advice from losing papertraders on bulletin boards!)

 

[durian]

I learned the hard way. After cutting the losses, I couldn't stop thinking about it for a week and sleep. Afterwards, it was not too bad, and cutting losses became part of the process.

Good luck.

Durians

 

[zigglewigler]

If you have confidence in your system, then losing money is quit enjoyable, you are steadfast to your stop, you move straight on, you are one step closer to the winning trade. Failure to accept the loss implies you have doubts overall about your strategy. Maybe you have too much at stake on too little experience. Stick with it but reduce your expectations, reduce your risk. Build the confidence first, then build the bank balance.

 

[babymush]

Thank you everyone for all the suggestions and advice.

Is there an easy way to take my past data, see what it the maximum amount of ticks that a trade has gone against my entry price to the date I sell and also taking into account the profit/loss of that trade.

Say for all my profitable trades, the ticks gone against me was only 5 ticks while for all my losing trades, the ticks has gone against me for like 10 ticks...

Is there an easy way to do it using Metastock?

 

[senyorqueso]

Babymush,

Have you read "Trading in the zone" by Mark Douglas? If not, I'd recommend it. More on the psychology of trading really (so don't expect to be given a winning trading strategy) - he tries to encourage you to think like a consistent trader and see the bigger picture - looking at the combined result of 20 trades, rather than worrying about whether each trade was a winner or loser. He talks about trading being like a casino - a casino operator will always win in the end, but knows he'll have to pay out regularly along the way.

SQ

 

[SOCRATES]

He is right about talking about trading (in general) having similarities to a casino, an environment in which the punter is "the goat" and is prevented from having realisations about the control of risk, for starters and how it is that there are no windows, or clocks or mirrors on the walls, to create an environment devoid of reality but full of artificial sophistication, excitement, hope, fear and greed into which are lured countless innocents and in which even real money is substituted by tokens to finally refine the disconnection from reality.In this environment there are professional gamblers who are banned from even stepping into a casino on a world wide basis, because they are consistently successful at beating the house. In the world of trading there is a parallel universe such as this, but fortunately the consistent winners are not banned. I consider the concept of looking at the combined result of 20 trades to be flawed, because the object of the excercise is not to average a result, but to get it right consistently.
The average of a result is what the professional gambler does, whereas the effort to get it consistently right is what the professional trader does, and this, constitutes a world of difference.

 

[nine]

Socrates, I was sure that you said you were going to stop posting. You mix things up with great delight in your search for an argument.

My interpretation of Mark's prescription of 20 trades is that it is simply a device to move the new trader away from trying to make every trade "work" (ie make money). By not counting the money until you have executed 20 trades you can focus on making each trade 100% compliant with your strategy (rules) instead and not worry about the trades that lose/hit their stops/are a cost of doing business.

So like a professional gambler you make an effort to gamble consistently right every hand ... but you accept that you lose a few along the way ... and you only count the money at the end of the night.

I attach something that BabyMush might find useful in working on his thinking. Good luck and good trading Baby.

 

[SOCRATES]

Yes Kiwi, I ahve stopped posting in the quantity of content I used to because I am very busy with a project. However, if I have a little time to spare, I don't mind putting in a word or two.

Your post above, number 19 :~

Fundamentally that is how you start. You start by on balance getting a positive result overall. This is a progression. You begin to get a better result overall if what you are doing works. Then you begin to get and even better result overall if what you are doing works very well. Then you begin to get excellent results compared to when you started if what you are doing works very well indeed, and here you arrive at a junction in your trading, because, now you are sufficiently proficient to be able to identify the really good ones singly. You begin to target selectively and so your analysis of your results also is selective, progressing to getting it mostly right. When you get it mostly right and you are selective, your view of your own performance and potential changes. That is why a shift occurs in the way you look at it.
That shift and afterwards is what I am talking about, and not what happens previously, because what happens previously is just the road leading to it.

Kind Regards,