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.
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.