Link: Playing to Win or Playing Not to Lose

Feb 8, 2008: 8:48 AM CST

Dean Reese, contributor to the excellent and popular Trading Goddess blogsite, recently posted an article entitled “Playing to Win? Or Playing NOT to Lose” which underscored a major point I try to convey as well.

Paul at The Market Speculator also posted an informative article entitled “Winners Trade to Win” which deepens the discussion beyond that of Mr. Reese.

In “Winners Trade To Win,” Paul notes “In trading, playing not to lose will cause you to pass up on good trades and scare you out of trading volatile, yet lucrative markets.” Furthermore, “You know what happens when you focus on not losing money? You lose it.”

There is a major difference in the approach you use, and the strategies you decide to employ in your trading depending on your motivation. If you are playing to win, you will be more in tune with the proper mindset needed for successful trading, but if you are playing not to lose, then you will face an entirely different set of obstacles and challenges for you to achieve your goals.

I am highly familiar with the concept “Playing NOT to Lose.” I think it’s common for many traders to experience this after a large loss or a string of smaller losses. You tighten your stops, reduce your position size, take familiar trade setups, and the like. That is perfectly fine until you come out of your “trading slump.”

What is not fine is to adopt these principles 100% and utilize them all the time and make it part of your “trading personality.”

You really need a segment of your trading plan to address situations of great edge and probability and alignment with your understanding/interpretation of market behavior so that you can press your edge and earn large profits similar to the old saying “make hay while the sun still shines.” Often, a very large percentage of your annual profits will come from a small handful (5% to 10%) of your total trades. What would be the result if you “played conservative” or took an early stop-out on those 5% of trades? That would make the entire difference for you between profitability and not.

Dean gives us some guidelines and rules to consider regarding this topic of utmost importance. Visit his post and give some thought to your own trading and ask yourself about your overall motivation in an attempt to steer the difficult course between over-aggression and over-conservatism.

4 Comments

4 Responses to “Link: Playing to Win or Playing Not to Lose”

  1. Paul Says:

    On Wednesday I posted about “Trading to Win” and how the “preserve capital” mentality is one of my pet peeves. The article you link doesn’t really address “trading to win” vs “trading to lose.” It basically just touches on risk management, and his focus was on preservation of capital–which is a trading to lose mentality.

  2. Corey Rosenbloom Says:

    Paul,

    I agree – overcoming “trading not to lose” has been difficult in my trading career and I have the scars (and many many missed profits) to prove it.

    True, the article from Reese may be mis-titled, but seeing it inspired me to write a little bit more on my thoughts here on the open blog. I actually didn’t touch on much of what Reese said in his article because it had a different focus perhaps on what the title implied it should be.

    To broaden the discussion, I have added your post into my link above.

    Thank you for the comment.

  3. John Forman Says:

    “Often, a very large percentage of your annual profits will come from a small handful (5% to 10%) of your total trades. What would be the result if you “played conservative” or took an early stop-out on those 5% of trades? That would make the entire difference for you between profitability and not.”

    You express in that quote one of the issues I took with Dean’s post. He recommends pre-determined targets, which would kill any type of let your winners run type of strategy, as I posted in my comment to his post.

  4. Trading Goddess Says:

    Thanks for the mention of Dean’s article, Corey.

    I am interested in Paul’s article too and will run over to his house to read it.

    🙂