Losses are important in trading

Pullbacks are important for the market. They serve to flush out rampant optimism and reminds everyone of risk. People who think about risk make educated decisions. It keeps the market efficient. A market that continues without pause creates an imbalanced demand and supply equation. People feel comfortable buying higher and higher, people forget about risk and everyone is long from overvalued prices.

When the market finally corrects, it tends to be much quicker and much more fierce. If everyone is long, who is left to buy when the market finally drops?

Your equity curve is like a stock chart, you need pullbacks along the way. Why? Because those are when the real lessons are learned. Losses reminds us of risk, it refocuses our attention on the type of game we need to play in to win in the long run. Losses motivate us to research more, to think more and to correct our mistakes.

Compare this to what winners do for us mentally and emotionally. Winners make us complacent, cocky, arrogant, maybe even lazy. We feel we know everything there is to know about the market. We give ourselves the “I made it!” speech. After all, who needs to research when we are already making money, right?

I guess what I am trying to say is embrace losses. If you embrace them, you won’t fear them. If you don’t fear losses, you can take them naturally and not let them get out of control. This is more of a reminder to myself than to any of you. But if you find it helpful, well that’s cool too.


ES Gap fill and hold until close trade

Stats for the day were bullish, high chance of gap fill and closing above the open. I entered long a few minutes after ES open and experienced a pretty big draw down (comparable to my profits). I was still confident in the trade. Even if the market did not fill the gap, it should close above the open.

I would normally hold for the entire gap fill, however, because ES dropped so much (compared to the average range), I thought it would be difficult for the market to rally much further. In my experience, complete reversals are not that common. As you can see, my extincts proved accurate for the day as the market essentially closed where I cut.

This trade honestly had a terrible entry, I’ll try to do better next time.