May

26

I believe every trade I enter will be a loser–that is my most powerful trading belief. That concept keep me on guard and alert. Emotions are strictly Money Management. If/when you are too emotional, it just means your position size is too big for your emotions.

H. Humbert responds:

The attitude will tend to put you in contrarian positions at the best times, the times of maximum fear in the market or towards a stock. What you said is the same as saying "your best purchases are the ones that are the hardest to make." Of course if you recognize that you are a contrarian, at the same time on some level you have faith that the position will work out. It just depends on what level you want to think about it, emotionally. First derivative second derivative stuff.

The point is, with money in the market based on who is, or who is not, playing tennis (times 10,000 investors with their own 10,000 irrational superstitions), there are bound to be mispriced securities somewhere. Our job is to find them. Despite all their spreadsheets, NPVs, TA, back testing and “counting,” investors remain among the most irrational and emotional creatures on the planet. That is a good thing. That has always created mispricing, and opportunities. In essence, trading is about betting against human nature.

Galen Cawley writes:

I would say that thinking in advance that every trade will be a loser does not provide a positive edge so much as it prevents behavioral errors.

1) If you are a completely algorithmic trader, then the question is largely moot.
2) On the discretionary side, focusing on potential losses prevents unforced errors such as overconfidence manifested in the form of both overtrading (size and frequency).
3) Visualizing worst-case outcomes can prevent you from going on tilt during a crisis or during a string of losses.

Asindu Drileba agrees:

I have this attitude too. I assume every position will be a loss. So practically it helps me size my positions modestly. When I am placing a trade. A position is only in two states: a) I am over betting, in which case I may blow up. b) I am under betting, in which case I won't blow up. The only way to make sure that you are on the side of b) is to: 1) over estimate your losses; and then 2) under estimate your wins.

Another reason for assuming that your position is going to be a loosing one is that you are proactive to your trades, not reactive. Reactive means that you improvise when surprised by how things have gone. Of which you may not be in the right head space to make a decision. Proactive means you already assumed the trade was going to loose, so you had a plan ahead of time (when you were clear headed). I, for example know exactly the maximum I can loose on each trade, and it is always an amount that doesn't make me panic. Do I get Annoyed? Disappointed? Yes. But I never panic.

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