A lot of risk management threads, posts by elite traders on ET and all trading wizards on Schwager's books said learn, practice how to take losses is one of the most important keys to trading success. However, no one really spelled out exactly what that meant and the steps, processes of learning how to take loss. Two questions for those willing to answer: 1. What is your definition of the right way to take losses and, 2. how do you practice and learn the how to? Thank you.
You have to know when you are wrong. For me (TA mostly) that means when the chart has been violated (support levels, MAs, etc). Close out the failed stuff, and look for new setups. Keep the failed stuff to a minimum, and let your winners run. That's it. *** But if you can't recognize when you are wrong, that's a bigger problem. Most traders (scalpers, swing traders, etc) learn to pace themselves, such that trading becomes methodical, almost boring. For many, the repetition will sharpen the focus.
The right way is to take your loss; take it where you planned to take your loss. If you can't bring yourself to do that put a hard stop in the market. You practice taking a loss the same way you practice anything else; do it over and over until you get it right. Change your focus from P&L to process. If you take your loss where you planned, then the trade is a successful trade. A good trade with a bad outcome.
One thing guaranteed in the stockmarket is that you will suffer losses. Nobody bats 100%. A lot of times, you will have win rates of 40-50% which is enough to make substantial monies. You can have a lot of small losses but, your winners have to be several multiples of your losers. That is the key to your trading edge. Also, the few big, humongous winners is what makes your year and comprise majority of your profits. Most times, the gains are average and not the blockbuster gains you always want to get. That is life. Also, those small returns of 10%, 20% 32% when you add them up comprise a good chunk of monies. Compounding in the stockmarket is faster if you are trading stocks. You compound the small amounts of profit and they turn into huge amounts of monies at the end.
%% Focus on a good plan + profits; losses are expenses , so plans may help. Distribution is used of selling + giving, the latter is a much better risk reward than sells + buys. The best way to goof up profits+ max loss[bad losses] is use leverage all the time; but if thrill s are the main goal use leverage all the time+ focus on losses . Catchy Title of book ''Best Loser Wins'' but if that'$ is your best plan; all one does is be a good loser LOL. Good iron market. But the gentleman that wrote that book showed much, much more to it than losing/ so catchy title anyway.
At least you have a plan. That's probably more than most unsuccessful traders. If you have the discipline to follow your plan you can then rule out that the problem is the trader. Now you adjust the plan.
@deaddog has the correct recipe. I would modify slightly and suggest Change your focus from P&L to the discipline of adhering to the rules of YOUR plan. Ultimately, the discipline becomes matter-of-fact. The process imo, is the execution of YOUR discipline, well timed or not.