This post explores an alternative view on why losses are a part of the business of trading. If you think this can be helpful to you, please read on.
You are One Among Many:
To get my point across, consider that there are millions of traders, investors, and businesses involved in the markets at any one time. Below, I explore the different players, strategies and timeframes involved in trading.
Different players:
The main players in the markets are:
- Retail traders which come down to individual investors, both professional and the not-so-professional.
- Institutional investors which many call the “Smart Money”, think: Hedge funds, pension funds, asset managers, etc.
- Market makers and liquidity providers who provide quotes to ensure markets get quoted at many different prices.
- Financial Intermediaries who facilitate trading between buyers and sellers, underwrite IPOs, etc. Think of investment banks and brokers.
- Governments and Central Banks who gets involved in order to stabilize economies.
There are others, but the above will do for the purpose of this post.
Different Strategies:
There are countless trading strategies; while I won’t list them all here, the following are some of the most common:
- Trend trading.
- Breakout trading.
- Range trading.
- Mean Reversion trading.
- Trading Classical Chart Patterns.
- News Trading.
- Arbitrage.
- Pairs Trading.
Many of these strategies can be traded mechanically or discretionary.
Different timeframes:
The above strategies can be traded over different timeframes:
- Long term (weeks / months / years): Position Trading.
- Medium term (days / weeks): Swing Trading.
- Short term (intraday): Day Trading.
- Very Short term (seconds / minutes): Scalping.
Often, traders use a combination of these. For example, a trade might start as a day trade, but the trader decides to “swing” it into the next day—hopefully because it’s in line with their strategy, and not just because they are avoiding a loss.
Putting Losses into Perspective:
If you take into account the diverse players, all the different strategies, and the different timeframes involved – knowing that they all want (some wholeheartedly believing they will) to be right – do you really think there is a holy grail strategy out there that guarantees a 100% win-rate?
If you agree that this holy grail does not exist, can you start to accept that taking losses are inevitable? All strategies will have losses; it is a fundamental part of the game that you must make peace with and fully internalize.
Finally:
Losses are a part of trading. The quicker you can accept this, the quicker you can start to improve.
Thanks so much for reading. Goodluck with your trading.
Thanks and Regards,
Trading SOS SOS
