Mastering the Essential Skill of Taking Losses
YouTube monologue by Sam (Kardec Trader) about the psychology of trading: fear of losses sabotages performance because the brain interprets losses as threats to survival. Traders must reframe losses as learning opportunities, separate self-worth from trading outcomes, and train bodily/emotional responses (breath, tension release, mindfulness, memory reconsolidation) to manage uncertainty and maintain disciplined performance.
Chapters
The most consistent problem that I see every day with aspiring traders is this. They don't want to lose. They'll do anything not to lose. And what they don't realize is their attitude about losing is in fact what's holding them back.
Most people have grown up in a world where hard work, they can push, they can make things happen. And the more effort they put in, the greater the likelihood that they're going to win and not lose. That's very important. And yet at the same time, and when they get into trading, the exact opposite happens, is they have no control over winning and losing. And it flips them out. It, it takes them, particularly when there's real capital sitting there at risk and all of a sudden it's oh my God, this is real loss, that trade has turned against you and it's reaching, reaching closer and closer to that hard stop. What do you do? What do you do? I don't want to lose. I don't want to lose. What you have just triggered, friends, is an ancient circuitry for survival.
The mammalian brain does not understand winning and losing. It learns something very different. It learns about dying, giving up your energy for another and taking energy, winning. That's what it knows. And all of a sudden you, you have pressed your thinking brain into a situation where it's facing life and death. Of course it's going to fight to the finish. A Sabbath toothed tiger is attacking you. You are going to do that. That's the programming that you bring into trading. And in other areas of life it's done you well.
In trading. It doesn't though. Trading.
Is about probabilities. The truth is, if you're going to become a consistently profitable trader, you're going to have to become a really good loser. In fact, really cherish your losses, about being able to maintain small losses rather than having something exaggerate and go ballistic on you. So ultimately, what you're going to have to do to be able to become an elite trader is consistently profitable is you're going to have to change your perception about winning and losing. And in here, the very first thing is most people get into trading because they think, oh my God, you know, some I can have personal financial freedom and I can also have this personal freedom of being able to do what I want to do. And they don't realize that, yes, that's true, trading does offer that opportunity. But what most people don't tell you is that you're going to have to change the way the brain interacts with uncertainty to be able to do that and friends.
Very few do that. Most just think, I'm going to try harder, work harder. But that's not the way it works. So what we're getting here is this, is that you're hardwired in a way that's going to cause you not to be able to perform well under pressure. With capital at risk in trading, you're going to have to take that. Hard wiring coming from your evolutionary psychology and also probably from your family system about being competitive, really wanting to win, never enough, all that. And then what you're going to do, you're going to have to shift it to where you recognize one profound thing.
Ready? It's not about winning and losing. It's about performing. It's about, you know something, if I have an edge in my method, statistically that if I get an edge in my head, what that really means is I'm focused on performing, not on the outcome. The truth is, is you do not control the outcome. You don't control winning or losing. But with training, you do control the mind that you bring into the moment of challenge. That, friends, is what we teach now to do that, what you're going to have to start saying is, you know something? I have been evaluating myself as a human being. My value as a human being with my performances, with whether or not I win or lose. If I win, I'm a big tease. I get, I get all sorts of stuff. I get, I get respect, I get all that and I make money, I get half power. I have safety from the unknown. Yeah, the problem is you don't control that. Now when you lose in trading, what happens is that it's like that power is being taken away from you and you're freaking out to survive. When you win, you're feeling, I'm winning, I'm winning. Look at me, look at me. I know how to dominate the environment. The truth is, if you're putting, aligning your sense of being in the world, your value as a human being with your performances, you're going to always have trouble in trading. Trading isn't about, it's about an edge that you extract more capital out of the markets than you give back in. But in that equilibrium, you're already talking about losing, giving back money into the system and taking back out. Your job is to produce a mind that is independent. Your performances, your performances. Let's just say you take a loss. What that tells you is that you just produce failure. Now when I say failure, what triggers anew? Nobody likes to fail. They want to win. They want to. They want to do all that. But the problem is this. Your brain does not learn from success. That establishes and maintains pattern. It learns from failure. Take a look at Ray Kroc, the founder of McDonald's. He famously once quipped, I failed my way to success.
And friends, what I'm asking you to do is to start really taking a good look. When you take that loss recognize, wait a minute.
Is that about me or is that about a failure that opens up possibility for me to learn how to better adapt myself to dealing with uncertainty? Yeah, if you start saying, well, what's the failure here? What's opening up? And what you discover is most traders, what they've done.
They have glued winning and not losing with their sense of mattering who they are in the world. If I win, if I'm winning money, if I've got money, I'm a somebody. Also, it equates to their sense of worth as a human being. Do you see how much power you're giving to something that you don't control? And yet at the same time, then you also see yourself as inadequate if you don't win. Actually, what I'm asking you to do is say, if I don't win, if I take a loss, what is that failure revealing to me? How is it going to help me produce being a better trader? It will teach you how to move away from the old fiscal belief that work hard and I'm going to make money and I'm going to have value as a human being to. No, I'm focused on performance.
And what I'm going to do is I'm going to consistently perform so that my edge and method can extract more capital out of the markets than it gives back. That's what we're looking for. But to do that, you're going to have to separate your value as a human being and your performances. The trading gods are notoriously horrible about that. How do you do that? Well, we teach a method. The process that I teach is rooted first of all in a fundamentally different understanding of emotion. And I welcome you to check out all my articles from my book, all the interviews I've done, and explore what I mean by an emotion. I'll tell you this, it's not a feeling. It's a biological action potential that coordinates action between the environment that would be the markets and you, the trader. Okay, so you're looking at it going, oh, right there. But then you go, well, if an emotion is also biological, we need to start learning how to use our biology as a way of calming down the emotion so we don't get so easily swept away when that trade goes against us, that's what we're really looking to do. And then we're going, okay, well that's with breathing, learning how to diaphragmatically breathe, learning how to release tension. And what you'll discover is a stress signature has both a muscle tension part of it and it has a breathing component. You take away those, calm yourself down. You cannot maintain the sense of like, oh my God, I got it. I'm going to have to fight for my life. That fight flight response, you keep the threshold loader, you get your rational mind. Then mindfulness powerful is you need to be able to step back and recognize that you and your thoughts, you and your emotions, you and your beliefs are not one and the same. Yeah. In fact, you don't have beliefs. They have you. You fell into them. They formed like the truth, even though they're just an assessment about the world. And they started creating your future, Particularly under stressful things. Stepping back allows you to recognize who's running the show. And ultimately what you learn is that your brain is like a community of rival emotional programs that literally are competitive. They duke it out to create a self that you've been calling you. It's just a construction of the self the brain has done at another time, in another place, and it's not going to be effective for trading.
Now you get to there and you go, well.
How do I start figuring out how to work around this? First of all, you're going to have to learn to develop the discipline, internal discipline. It lives within you. But you're going to have to find something a lot better than affirmations and visualization. I use memory reconsolidation as a foundation of going back into memory, pulling it back up into experience, and finding the discipline, finding the courage, finding the self soothing and the clear thinking that had to have happened to have gotten you through a tough situation where you had to be firing on all cylinders. I use that because it's factual. It's from direct experience. It's not whooshed for. And then at the same time, you are preparing all the time for the struggle. And you no longer turn away from the struggle. You no longer turn away from failure as, oh, an indictment about you. No, you see that failure as a source of learning, of growing into the human being that can be successful in managing uncertainty. You learn that I control performance.
And by doing that, by getting that psychological edge, you drive your method edge. And you do become the person who extracts more capital out of the markets than they give back, you have become an elite trader. Very few people would do what I've just explained described. And if you want to learn more, I've given you my process. If you want to learn how to do that process, read more. Go to my Watch more of the YouTubes that I have. Go to my website and at the bottom of it get the book or get the free book if you're not ready for that. Still kicking tires. But then it really comes down. Dedicate yourself to rebuilding the mind for probability management.
There's no shame in that, friends. It's going to have to be done. And until you learn to do that, you're going to get stuck in firing these patterns the moment you get challenged. Fight fight triggers. The mind you need for trading is gone and it'll stay that way.
Come and learn friends. It doesn't have to be be this way. You can build the mind. You can be captain of your own destiny. But it's going to take a little emotional lifting and you're going to have to take a look at the beliefs that drive your performances and you're going to have to rebuild them to become human being that you can be friends. That's the ticket. Come and learn. Sam.
