I’m not sure if you guys have discovered Gatis Roze, one of the newer bloggers over at StockCharts.com. I mentioned his new blog back in the Spring, and he certainly did not disappoint. He’s been pumping out blog post after blog post. And since I read a ton of technical work everyday, it’s nice to sometimes sit back and enjoy more of a philosophical discussion on trading and investing.
One of his recent posts at The Traders Journal – “How I Deal With Trading Losses” is a must read. Here are a few things that stuck out to me:
As I see it, there are two types of losses. The first
type of loss is simply a result of the laws of probability and is to be
expected if you follow your methodology. I tell my classes that I lose
about 4 out of every 10 trades. The novices in the class react by
asking themselves why they are taking an investment class from such a
loser. The experienced investors nod their heads in approval. The point
is that when I lose, I cut my losses quickly to minimize the costs.
When I have a winner, I let it run. It works out to be a net positive
as the winners more than compensate for the losers. For you sports
fans, another way to look at it might be to ask: how much would a
baseball team pay me if I hit only 6 out of 10 times at bat? (more)