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. As a trader, you will lose money. No one has a record streak of winning trades in this business. In this article, I 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 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. Bill Gross, the former bond king has had a below par performance. 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. Therefore, you are not alone.
- 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 my experience as a trader, I have learnt a lot from my past mistakes than I have done with my past successes. Therefore, anytime you close a losing trade, take time to think about it and learn from it.
- Lost Opportunities
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.
- 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.