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Trading Psych: The Art of Losing

Fin - Breakout - US

My name is Jeff, and I lose all the time. And I don't just lose minor things like my car keys or dignity. Sometimes I even lose money on trades.

I'd be sad about my frequently incorrect trades and opinions if not for a dirty little secret I've learned through the years: I'm not alone. Believe it or not, even amongst we the professional trading punditry, every single person is at least occasionally wildly off base. You may or not ever see anyone else admit to having suggested losing trades, but we all have. I've run the numbers and you can look it up for yourself.

So why raise the awkward topic of losing when making money is ostensibly about winning? Because if a trader or investor doesn't know how to properly take a loss, they're going to throw away every penny of their winnings. If you don't know how to go about accepting and dealing with a losing trade, then you shouldn't even bother trying to pick winners.

Having lived and traded through at least four bubbles in the past 20 years, I know what it looks like when the emotions of winning and losing get involved with trading. It looks like silver looks now. Every other explosive market or stock gain I've seen over the past generation has ended poorly for most participants. This one will end in tears as well and, believe it or not, it's not simply a matter of whether you're playing silver long or short. You know the saying "You can't take it with you?" It refers to both life and bubbles.

I talk about a personal loss in the video. I could have done plenty more, as could any trader who's honest. Here's a breakdown of the points I'm trying to make. I try to apply these lessons to my whole life, but my real intended audience for the moment is the people writing the most angry comments about silver long or short. In my experience, those are the folks most apt to get really hurt.

* Winning or losing is obviously personal. The Godfather was wrong; all business is personal. Accept that losing hurts and winning feels all too good, and adapt accordingly.

* It's ok, even good, to change your mind. Don't talk yourself into staying long or short to the grave. A buy or short order isn't a suicide pact with your broker.

* Respect the other side. There's way, waaaaaaay too much personal invective going on in silver right now. People who disagree with your take on silver aren't (necessarily) morons. Even if they are, it's wrong to tune them out or shout them down. You can't learn anything from yes men or your own head; you learn from debate.

* Set a point at which you'll bail in advance. In. Ad. Vance. And don't cheat. There are still people long Cisco (CSCO) at $80 a share, and there are people short Apple (AAPL) since it was $150. Don't be one of these people. Know when you'll admit defeat, self-flagellate and move on with your life.

* Please stop bragging and stop yelling. Take a position, state your case and own the results, one way or the other. When you lose -- and you will lose, if not on silver than certainly at some point -- don't blame anyone but yourself. Argue with all the vigor you'd like, but understand that the people taking the other side are actually doing you the favor of sharing their personal insight. You don't have to thank them, but calling them names and blaming them for your failings makes you look silly and prevents you from learning much of anything.

My last point on losing isn't in the video. It's a little bonus for those who read to the end of the column. An invaluable gift from me to you:

* Losing sucks. Try to win if at all possible.

But then there are plenty of talking heads trying to teach you about that.

Let us know what you think. Write to us at Breakoutcrew@yahoo.com, or comment below.