Tip 5: Sometimes You Will Lose Money

Many beginning traders and investors envision quick and great returns from the stock market. They spend days dreaming of what they will do with all of the money, from paying off debt to celebrating with their loved ones in expensive restaurants.

At the same time, they assume that every trade and investment will be a winner. Then, with one loss, even a small one but certainly with a big one, their expectations come crashing down, to only be replaced by fear, confusion, and frustration.

One reason they experience these emotions is because they lack the recognition that every trader and investor loses money. Even the historical and current stock market greats, from Jesse Livermore to Warren Buffet, has lost money on a trade or an investment.

So, if you experience a loss, know that you are in good company. In fact, there are a significant number of traders and investors who have depleted their whole accounts, but have stuck with it (in their practice accounts until they have found new funds), learned from their losses, come back, and are quite wealthy now.

The thing to do, especially before catastrophe happens, is to learn how to keep the losses smaller than the payouts from the winners. This might entail using stop losses or diversifying your portfolio wisely. Some practitioners promote their win ratios. Yet, at the end of the day, high win ratios mean very little if a few losses wipe out all of the profits, and low win ratios mean a great deal if the more abundant losses are kept smaller in terms of money than the settlements of the comparatively fewer successes.

Be calm, know everyone loses money in the stock market at some point, and stick with your winning strategy.


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