Lars Kroijer is a former hedge fund manager and the author of a book called Money Maverick. The book describes how Lars went from a top analyst at a top investment bank in New York to starting a hedge fund in London and his exit from the business.
Lars raised more than $400 million for his hedge fund and made good returns for his investors before losing 3% in one year. After the loss, he gave up and shattered his firm.
Okay, nice story (actually not so much). But what do we want to say with it? Well.. As a trader, you will lose money too. No one has a record streak of winning trades in this business. And you can use these losses to become a better trader.
In this article, We will explain a few reasons why you should never give up after a loss.
You are in good company
When you make a loss, you should remember that you are in good company. Most of all the traders and investors you know have made losses in the past.
Warren Buffet, despite the many lessons he teaches us, bought a shoe company that went bankrupt. Ed Lampert, the famous investor is now losing billions of dollars as the Sears company he owns collapses. Bill Ackman lost $4 billion in the Valeant Pharmaceuticals investment. David Einhorn, one of the most successful investors lost money after the solar company he invested in went bankrupt. Dan Loeb and all the other famous hedge fund managers have at some point in their careers lost money.
Ok enough, otherwise this list becomes endless. All this to tell you one thing: you are not alone. And probably, this big loss won't be the only one either.
» Related: The Top Habits of Highly Successful Day Traders
Take losses as stepping stones
You should take your losses as a learning experience. The minute you exit a trade after a loss, you should take time to learn from that. By learning, you will avoid making the same mistake next time.
In our experience as a trader, We have learnt a lot from past mistakes than We have done with the past successes. Therefore, anytime you close a losing trade, take time to think about it and learn from it.
A good way to approach this is to use a trading journal. A journal is a document where you write all details of your trades. In it, you write details like all your trades, the reasons for opening them, and the outcome. The journal will help you learn from your mistakes. It will also help you not repeating the same mistakes several times.
More attention to details
In our trading career, We have learned a lot from past losses more than in all the profitable trades that We make. After making a loss, We always do our best not to repeat them again.
For example, in the past few years, We always have a stop-loss in all out trades. The reason? We do that because We once lost money simply for not having a stop-loss. A detail we had overlooked, at the time, but it cost us quite a loss.
By giving up on your trading career because you made a loss, chances are that you are losing out on potential opportunities. As you have realized by now, there are so many opportunities in the financial market that you can take part in. In fact, you can make money no matter the direction the assets are moving in.
Therefore, when you decide to give up on trading, remember that you are losing more opportunities to make money. Moreover, using strict risk management strategies you can easily reduce the risks of making huge losses. Always ensure that you have a stop loss in all trades that you enter.
Your efforts in vain
Another reason why you should not give up after a loss is that you have basically spent a lot of time learning about the financial market. You have practiced and done all that needs to be done. As such, you don’t want all that to go to waste by giving up.
You can reduce the risks
Prevention is always better than cure. In the trading world, it’s possible to reduce the amount of money you lose per trade. One way of reducing the risk is by having a stop loss.
A stop loss is a tool that allows you to limit the losses that you make. For instance, you can allocate money in such a way that you will lose only 10% of your money in the worst-case scenario. This will help you minimize your losses and help you become a better trader.
In our experience, We have never seen a trader who is always perfect. At times, mostly on a daily basis, you will make a loss. We highly recommend that you spend time to learn from your mistakes and not to give up.
You lose when you allow yourself to give up. Indeed, we believe that losing will make you a better trader.