Three great ways to lose money

There must be a thousand ways to lose money trading, and most of them are bad ways. Many traders, especially newer traders, are paralyzed by fear of loss. Many traders go “on tilt” due the frustration of losses, and throw good money after bad, sometimes wrecking trading accounts and fortunes. However, traders also know that losses are a fact of life–if you participate in the market you will have losses. The key is losing money in the right ways, managing your behavior, and eliminating mistakes. Here are the three excellent ways to lose money:

  • Losing trades: No matter how you trade or invest, you will be wrong and you will have losses from being wrong. Learn to love these losses, because they are stepping stones on your path to success.
  • Information: Though we seek to minimize these costs, there is a reasonable tradeoff. At the very least, you will probably have to pay for real time market data, and many traders find that some research products augment their own investment process. While we’re at it, new traders can expect to spend some money on education, though there are some excellent free resources out there.
  • Execution: trading costs money. Though costs have come down in this highly competitive business, paying for excellent execution and the peace of mind that comes from having a stable platform is money well spent. Also, consider the market impact of your own orders and action in the market as a potential trading cost.

Notice what is missing from this list? Mistakes. If you are going to be a successful trader, a lot of the game comes down to eliminating mistakes and “unforced errors”. Don’t trade too big. Don’t go on tilt. If you make a mistake, fix it immediately. If you are wrong, get out of the market. Don’t be afraid of losses, but be ruthless when evaluating your own behavior. Eliminate mistake relentlessly–this is one of the core tasks of competent trading.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.