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.

This Post Has 7 Comments

  1. Rich

    Very true – another excellent post. Seriously this has to be the best trading site on the internet.

  2. irdoj75

    Maybe we can re-phrase it, and not call it “lose money”, but “invest money”? 😉

    Losing trades:
    In my opinion there is a point often omitted by trading “literature”: trading frequency. I am not refering to the time frame but to the pure frequency you can enter trades within your approach within your time frame. If you expect your approach to yield 0.2R and you are not willing to risk more than say 0.3% of your account per trade, you simply need a min. frequency to get any meaningful results (btw, there may be a big difference between your account size, your liquidity and your net worth). Now I am saying this, because it helps me to reframe my losing trades, as it is simply part of my approach to have so many losing trades. I cannot consider them to be “lost money” but simpy a trading cost I have to invest in.

    I have an extremely frugal point of view on information. It obviously does not apply to all approaches, but I believe that you can operate at 0 cost for information (unless you need real-time data), except your book and maybe 5-10 others when starting all of which you can probably also lend in a public library or buy second hand at ridiculuous prices. I am still considering to try your WA newsletter, but my main drawback here is the desire to not simply jump on your back, but make it on my own…

    Regarding the trading platform I was struggling lately to make my process of entering the trades leaner, faster and less prone to errors. This is in my opinion another point often omitted in trading “literature” – maybe I am a victim of my own frugality, but I find it hard to cope with my constraints on time and the process of entering new trades, managing existing ones etc. between chart software, xls file and broker app, with most of the trades entered with STP LMT, attaching (all!) SL and 2 profit target LMT orders. I’d be interested to hear more about these things from others or from Adam.

    A leaner process goes usually in line with less errors and fortunately I did not have any devastating mistakes so far, but I’d also like to hear more about mistakes and what others do to avoid them.

  3. jpotrading

    What is the difference between “losing trades” and “mistakes? In the former stops are adhered to whilst in the latter they are not?

    1. Adam Grimes

      Losing trades are simply where you got in and the market didn’t do what it had to for your trade to “work”. You were wrong in the market. Mistakes are everything else: in too early, missed entries, out to soon, trading too big, holding past a stop, etc… even doing the right thing with the wrong emotional state could be a mistake.

      1. JackBurton

        In my opinion, taking a proper low risk trade and losing on the trade doesn’t mean you were wrong in the market. I’d say that if you recognize and enter a low risk trade, you were not wrong to do so, and if the trade is a losing trade, if you get out of that trade with a small loss you were not wrong there either, so you can be right on both your entry and exit and end up with a small loss. It may be a small thing but I think it’s important to recognize a good move as being right, whether or not I make money on the trade…helps to keep me on the right track.

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