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Losing Trades: A Trader's Greatest Tool
Fri Jan 10, 2014 10:34 EST

Ever feel like the guy in the picture when trading?

Taking losses can be painful and suffocating, or it can be beneficial and enlightening. Losses can be emotional roller coasters that lead to blow-ups, or they can be unemotional steps toward longevity in the markets.

There are only two ways to view a losing trade: as an emotional loss or as an unemotional loss. In a perfect world, we as traders will always take unemotional losses. These are the losses that we know that we executed according to plan with the probabilities of the trade in our favor, but the trade didn't play out in our direction. Over time, though, following our trading plans will make us money.

But we don't live in a perfect world, and we as traders will take emotional losses (even experienced traders will take these losses from time to time). These are the most important losses, and the only losses we can learn from.

What causes a trader to become emotional about a losing trade? The trader made a mistake and is aware that this mistake caused a losing trade. The more times we as traders make this same mistake, the more emotional we become with each losing trade. My mentor, a great trader, once asked me a very simple yet powerful question that changed my career:

"How long will you continue to do the same action over and over that causes you pain?"

Take a moment to read that question again before reading on. Now ask yourself that question. How many times will you knowingly make the same mistake? You will continue to feel that pain and emotional loss until you decide enough is enough, look at yourself in the mirror, and search your soul to find the emotional trigger that causes you to make that mistake. An emotional error can only be corrected if you search for its root, make yourself aware of what sparks the emotion, and remain cognizant of your emotions at all times.

Once you isolate the cause, you must practice control when a trade triggers the emotion. This very difficult task is why most fail in this business. Failing traders do not have the time, energy, or honesty required to dig deep within themselves and discover who they truly are. We are human, and we will always have emotions. In the trading world, traders don't need to become emotionless robots (it's impossible and you'll never reach that goal). Traders need to honestly evaluate themselves when they feel like an emotional loser. They need to find their mistake and figure out what emotion caused the mistake.

Every trader will have only a handful of mistakes that tend to repeat themselves over and over. Find yours, control them, and elevate yourself to the next level.

Editor's note: This story by Gregg Riek originally appeared on

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