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Lost in Loss
An email in response to my last article prompted me to consider the significance of taking responsibility in trading. There is a natural tendency for most people, in any area of life, to not take responsibility for results and behaviours that appear negative. We want to see ourselves in a good light and it is tempting to try to avoid responsibility for acts that we consider bad.
What we resist persists
The most important, the most difficult, and the first skill that a trader must learn is to cut their losses quickly. It is essential (as we all have read many, many times); we only lose significant money by holding onto losing positions. So why do so many (perhaps all) of us find it so difficult? What is it about cutting a loss that is so hard? The answer, I believe, is in what we say to ourselves about what a loss means.
It is the meaning we attach to a loss that determines whether we can accept it and let it go; or whether we refuse to accept it and in so doing hold on to it. What we resist persists. If a loss means something bad about you; if it means you're a loser, or a failure or just no good, or doomed to financial subsistence or whatever; then you won't be willing to accept it.
If a loss means something negative about us we won't want to accept it, this is human nature. We would rather hold on as long as we can and then, when we inevitably have to take the loss because it is now too big; too big to hide, too big to ignore, too big to refuse to accept; we look for our scapegoat.
The 'they' of the market: the controllers, the insiders, the manipulators, or even the market itself; anything but to take the judgement that the loss implies. The objective of our self-deceit is to avoid the judgement that the loss imposes. In the same way that the teacher condemned the school children in order to avoid the judgement about his manners, so do we look to shift the blame to some third party.
Significance of loss
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