Is loss a mistake?

May 16, 2023

There are two camps of traders. The first camp believes that a losing trade is a mistake (my trading mentor belongs to them) while the second camp believes that a losing trade is just part of the business and it's not a mistake (most of the trading psychology books will tell you that). Where is the truth?

I believe that in order to improve, it's better to treat each of your losing trade as a mistake. That gives you a reason to ask yourself "what did I do wrong" after each losing trade. If you don't ask yourself this question then it means you're just blindly following a strategy and there's no progress.

However, not all losing trades are equal. There are different types of losses:

  1. Technical mistakes
  2. Emotional mistakes
  3. "Bouncing ball" losses

Technical mistakes are losses caused by your incorrect interpretation of charts. It's when you were completely wrong about market's direction or when you chose an incorrect level for upcoming reversal. At lower levels of trader's evolution usually it's simply a lack of knowledge. At higher levels it usually happens when the chart gives you conflicting information so your setup is 50/50 at best but you choose to ignore one side and accept the information one-sidedly.

Emotional mistakes are losses caused by your inability to act logically in the heat of the moment. It means doing something that is not allowed in your trading plan, updating your trading plan during the trading session, missing good entry opportunities due to paralysis/fear, not taking a profit due to greed, failing to see an important pattern in the chart due to emotional blindness and more.

"Bouncing ball" losses are due to short term volatility during your entry period. It's when you get an entry signal only to see yourself stopped out in a short time. Then you're looking for a 2nd, sometimes even 3rd or 4th entry opportunity because the setup still looks good.

I think the "bouncing ball" is the smallest kind of mistake because if your trade worked out only after 2nd and further entry it means that there were too many traders taking the same trade like you and they had to be stopped out. However, I still treat it as a mistake because if you improved your chart reading skills you could tell in advance that that entry is most likely not going to work out. Also, perhaps you were not patient enough to wait for the right entry signal and that also counts as an emotional mistake.

So, after all, I say that loss is a mistake. However, you don't have to blame yourself for that mistake or break that table out of anger. What you have to do is ask yourself what type of mistake that is and work on improving your game. If you can't find the answers yourself then your trading mentor will most likely be able to point it out for you. Just make sure that your mentor is an actual professional trader and not a fake instagram guru. :)

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