Why We NEED to Lose To Be SuccessfulThere is a paradox to succeed when trading.
And that is, we need to lose to win.
We need to make sure though that our potential losses are ALWAYS less than our gains.
I want to go through some of the reasons why losses are not only inevitable but also essential in the journey of successful trading.
Reason #1. Losses are Inevitable
Financial markets are largely unpredictable due to a plethora of influencing factors such as:
Demand & supply
Geo, economical and political events
Algorithm volume trading by institutions
New influx of traders into the market.
Unpredictable micro and macro events
The unpredictable nature implies that losses are part and parcel of trading.
Not even the most seasoned traders can boast of a 100% win rate. Most successful traders end up with a 48% to 70% win rate.
So, if you’re looking for a high win rate – you need a reality check to stay grounded and humble.
Only then, you may have a chance at winning in this difficult game.
Reason #2. Losing Months Will Happen
Even when you work and follow proven and profitable strategies, you will face a time of losing streaks.
This can occur over weeks, even stretching into months.
You might lose a small chunk of your portfolio, but then you’ll need to the time to recoup and bring your portfolio back to ATH (All time highs).
Reason #3. Unfavourable market conditions
Markets are intrinsically volatile.
Not only that but, small markets tend to follow the bigger leaders.
And when the price fluctuations are erratic by nature, it carries the stocks, indices and other markets with it.
E.g. We could see the S&P 500 move in a sideways consolidation period for three months in a row.
And now matter how good the prospects are within a smaller market, they tend to follow the main indices.
So, we have to just wait for the better times and for the more conducive market conditions.
This moves on to a bigger element:
Reason #4: Economic Cycles
Broad economic cycles include:
Accumulation
Mark-up phase
Distribution
Mark down phase
Then there are periods of a boom, recession and a crash.
These will also impact market trends and lead to losses.
It’s important to learn to hedge positions (long and short) and know when to be neutral (no holdings).
You’ll need to learn how to adapt and integrate losses into your trading. That way, you’ll be more prepared and less emotional for when they come.
Let’s sum up the reasons:
Reason #1. Losses are Inevitable
Reason #2. Losing Months Will Happen
Reason #3. Unfavourable market conditions
Reason #4: Economic Cycles
