| | | Jay Kaeppel brings up a very important issue - what loss does to a person.
It can do a lot of bad things. A loss is very easy to extrapolate - you feel like a failure. Market gods don’t love you (maybe, your mother doesn’t love you?). Lady fortune turns away from you. In other words, it’s easy to slip into having unconstructive, damaging emotions. I can see how this can turn into a chronic issue.
How does one learn to embrace losses as an unavoidable cost of doing business?
Many years ago, there was a trader on SI, by the name Theresa Lo. She was a former successful institutional trader. At some point she got married, started having children - and went private. She spent several months fine tuning a simple intraday setup for trading futures. She was busy trading from a few minutes to maybe half an hour a day. She would enter an order for (only) 2 contracts. Usually, within minutes, win or lose, she would be out - and back to her babies.
Her setup gave her an edge - her odds for winning were a few percentage points higher. If her setup wouldn’t develop - she wouldn’t trade. She kept her trading account at $50K - and, every month, she would drain it down to that level. Her winnings averaged $5K a month. She was very consistent - but refused to increase her positions. Just kept pumping her few percent advantage.
Some may still remember her. Remarkable lady, a living, breathing lesson in discipline.
Another example - William O’Neil, the founder of the Investor’s Business Daily. He discovered -and used - the “Cup & Handle” pattern. His risk control was simple - if his position lost 7% (or was it 8? Not sure) - he sold. He also had stops on winning positions. The man was one of the greatest ever - trading gave him the funds to start his newspaper.
Having a system - and rules - offers an advantage. You can study your system, keep testing it - and tweak it from time to time, as market regimes change.
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