LOSSES ARE JUST PART OF THE GAME

How many times have we heard this one: “He/she/they caused me to blow up my account”?

Blaming someone else for your losses. Pretty much every novice trader in the world goes through this phase, and many experienced traders as well.

Now I’m going to let you in on a secret that will save you thousands or even millions if you will listen and heed this warning.

Everyone loses from time to time. It’s an inevitable fact. No one, and I mean no one will ever win 100% of the time.

Here’s another secret that many traders overlook. Winning percentage has absolutely no bearing on whether one makes money or loses money over time. You can win on 90% of your trades and still lose money over time. Sounds impossible right? Let me give you an example.

The Bollinger band crash trade produces a winning trade about 86-92% of the time. You simply buy when price closes below the lower Bollinger band, then sell on any positive close, or after 15 days, which ever comes first. Almost 90% of the time you will record a win with this simple system. However…

10% of the time it will produce a loss. And the problem comes in that most of the wins tend to be small gains. But when the system fails it produces a big loser. Over time the few losers end up costing you more than the many small winning trades produce. So in the end the system has a negative expectancy despite having a very high win percentage.

Day trading for most people produces the same results. A whole bunch of little winners that gets offset by one or two big losers. Then of course your broker ends up getting rich off of your gambling habit.

As you’ve probably noticed newsletter writers always brag about their winning percentage. It’s how you sell subscriptions. Amateur traders always associate a high winning percentage with making money. In fact nothing could be further from the truth as I’ve just shown. And then of course most newsletter writers will never run a real time portfolio, and most will also cover all the bases by providing one with many alternate scenarios. Elliot wave newsletters are notorious for this tactic, but lets face it, almost every financial newsletter uses this strategy. Of course with many alternate scenarios one of them has to pan out, and that’s the one that is conveniently used to pad their record.

And here’s the most dangerous mistake many traders make.

At some point every guru gets on a hot streak. That attracts subscribers like a moth to a flame. And unfortunately many novice traders assume that the guru has a crystal ball. So what do they do? They become overconfident in his calls and they go all in.

Then sooner or later the guru misses a trade. Remember everyone loses from time to time. If you are all in when your guru has a loss you end up blowing up your portfolio. It doesn’t matter how much money you’ve made following him up to that point. If you are all in when the inevitable loss occurs it’s game over, lights out.

That’s when we hear the cries of he/she/they cost me everything.

The quicker you take this to heart, the better your chances are of making long term gains.

NEVER BET THY WHOLE WAD!

ACCEPT THAT THERE WILL BE LOSSES!

PLAN FOR HOW YOU WILL COME BACK FROM A LOSS.

YOU CAN’T COME BACK FROM A LOSS IF YOU DON’T HAVE ANY MONEY LEFT.

So no matter how big your gurus winning steak is you need to keep in mind that just means he’s closer to the next loser. Plan accordingly. Don’t bet so heavily that you can’t recover when that losing trade hits.

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36 thoughts on “LOSSES ARE JUST PART OF THE GAME

  1. Pedestrian

    Excellent post Gary. Very well said. The blame game is as bad as the manipulative way a few notorious newsletter writers pad their success rate. Actually its pretty rare to hear any of them admit defeat. And yet we do know for a fact that everyone has trades that go sour.

    Not even the best traders in the business get it right all the time and we should all acknowledge that.

    The boards are full of bitching and moaning wherever you go in the internet though. Remember Larry Edelson (God rest his soul). He was certainly well known and had many thousands of subscribers but regardless, every single time he wrote and article more recently it was bombarded with attacks against his prior record and some of the griping went back years in the past.

    Zero forgiveness. It made no difference that he got better year after year either.

    That’s the downside of being in the business many years and having a large public profile. And with the permanent memory of of past calls well circulated on the internet there is just no peace for some guys. And no hope of being forgotten by those few doing most of the crying and bitching.

    It’s like a career with some people. You have them on this board too. I am so sick of hearing about that old JNUG trade I could spit. I mean, what exactly is the point anyway? Time to move on. But no, the idiot squad who think they are doing some public service by advertising one blown call to the entire universe just never tire of repeating the same comments.

    What can you do? That is the life of being public and I imagine most of the people throwing stones could not handle the kind of garbage they throw around for even a single day if the negative focus was reciprocated on them instead.

    Anyway, carry on and do your best.

    You really need a thick skin to be in the business of guiding traders through the market. Either that or balls of steel since getting kicked in the sack every day seems to come with the job description…

  2. Pedestrian

    The game just changed. You MUST read the story below.

    Because now we know why China has been stockpiling gold for all these years as part of long range a plan to eviscerate the Petro-dolllar and end American dominance in the oil business while chipping a hole in US dollar hegemony.

    Many people warned this was coming. It sounded just crazy when I first heard it and I will admit I had my doubts. But as we learned yesterday, Chinese regulators will open a crude oil contract in Yuan and to make the case iron clad will allow those Yuan to be fully convertible into GOLD!

    Holy shit Irma! Did they really just do that?

    Indeed they did. And in case anyone here misses the significance of this abrupt change of events, this action makes the Yuan a defacto gold-backed currency in a more significant way than dollars are, (or once were), gold.

    You heard me right. If dollars are essentially as valuable as gold (you can buy gold with dollars, don’t forget) and gold and oil are interchangeable, then making oil contracts in Yuan convertible to gold means that Yuan are now semi-officially a gold currency.

    At least where oil contracts are concerned.

    But how long before the concept is similarly applied to wheat, soy or lumber contracts? And does not the convertibility of Yuan into gold also mean that dollar contracts changed to Yuan become gold contracts? So in other words it now pays everyone to switch to the Chinese crude exchange because you have a guarantee not currently available in pure dollar contracts.

    Maybe I am just nuts and reading this thing wrong. We will have to wait to hear more.

    But you have to admit it is a clever answer to dollar hegemony and by taking this step as the worlds largest buyer of crude oil the Chinese have assured themselves an unlimited supply of crude should the dollar itself begin to fade. It would also cause dollars to flow into China as Yuan is bid in the process. EG, selling dollars and buying Yuan in its place to make the deal outside the current system.

    This just gets more interesting the more I think about it. Anyway, read the article and judge for yourself. Does this change the game entirely? Is it perhaps an even bigger news event than Kim launching nukes across Japan?

    I think so. From the Zerohedge article:

    “The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review. To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges”.

    http://www.zerohedge.com/news/2017-09-02/de-dollarization-accelerates-china-readies-yuan-priced-crude-oil-benchmark-backed-go

    1. jabalong

      Oil contracts traded in yuan is a big deal, but is it really correct to say these are “backed by gold”?

      My reading of this news and some of the comments on ZH is that these are two separate things:

      On Shanghai exchange, investors can by oil contracts in yuan and gold contracts can be bought in yuan.

      So come by your oil contracts here and if you want to get rid of your yuan afterwards you can convert it to gold just as you can convert other currencies to gold in other markets.

      While I see how these two things can be complimentary, it seems incorrect to be touting these oil contracts as actually being “backed” by gold, as these oil contracts don’t have any gold component.

      Nevertheless, the more China touts its yuan gold convertibility the better it is for gold, as China will want to keep adding to its gold reserves for its own sake and to inspire confidence in its currency.

      1. Pedestrian

        Yes Jabalong. They are backed by gold. Don’t forget that the Chinese regulate the gold market such that most of it is on a one-way trip into the kingdom with little chance it can ever leave. Until now it has not been possible to settle this way. I realize I am stretching the argument a bit (I do that to get the bugs pumped up. Mostly its for fun) but this new mechanism came as a bit of a surprise even though I had heard of it before.

    1. Gary Post author

      Just classic Avi. He of course fails to mention that I strictly advised no more than 20% of ones portfolio in metals. So even if the position lost 50% it would still be no more than 10% of ones total portfolio. And he also conveniently forgets to mention our stop was any move below $1275 in gold.

      Of course you will never seen Avi enter the challenge has there’s no way to play alternate scenario’s in real time. πŸ™‚

      1. brianbrown67

        I had Avi’s subscription and I can tell you it is difficult to follow as he has all these scenarios up and down so he doesn’t really make very specific predictions. Not sure how one supposed to make money following him as he is never wrong.

        1. Pedestrian

          Well to start with Elliot waves are almost useless as a means to read charts. They are perfect in the rear view mirror though. Anybody can do that. But getting good counts as the charts develop is an exercise in futility and its why hardly anyone takes them seriously because the results are so contentious. The only time I use them anymore is on a check during a price decline. If I saw a really good five wave move then I might expect a nice Ellliot pattern decline.

    2. Pedestrian

      Just read that Avi piece. So is that the reason you wrote your article above on “Losses”, Gary.
      He is not all wrong either. You do use leverage too much and take excessive risk with portfolio percentage size. I suppose I am just sick of the topic.

      Whatever. If that’s what we are talking about then bring it on. You might consider toning down the rhetoric though since its not helpful. And your criticism of people posting here is often unfair if not dead wrong. Tell the truth Gary I mostly tune you out since I only post my own ideas and most of what you write is contrary to my point of view.

      But I can’t start a new fight every day. What is the point of that exercise?

  3. TraderPete

    Gold and silver have now broken out and are resuming their secular bull market. China is a big part of the equation, as it buys up as much gold, silver, copper, zinc, and other metals and rare earth metals as it can get its hands on; and oil as well. Now that the yuan will soon be backed by gold, gold will soon skyrocket along with silver which will appreciate even more than gold. The dollar is toast. Everyone should be buying physical silver and gold hand over fist before they are gone. Paper gold and silver will soon be toast as well. Folks, silver and gold are going to the moon. And if there is silver and gold on the moon, we will soon be rocketing to the moon to get them there; and maybe even Mars too. πŸ“ˆ ♉️ πŸ‘

  4. alvinheart

    Christian, you wrote: ” Yeeeaaaaaaah sorry Alvin! Kim Jong un never gave me the heads up on those missile launches but believe you me sweetheart that DCL – no matter how late – is coming soon to a theatre near you and it’s gonna be a good one πŸ™‚

    In the meantime, feel free to post an idea of your own.. oh you don’t have one?! Well hot damn! What a surprise, Lol!”

    I have to say I am deeply indebted to you because my ideas are to go against whatever your ideas are: to short the heck out of you! You just continue to be the best sm and investor loser, so I am making tons of money by doing the opposite of your advice. So please keep posting your ideas so I can continue making the big bucks! Thank you a million dollars over!

    1. Christian

      You’re making money by doing the opposite of my advice?? Really?! Like, the exact opposite?!

      Ok then.. here’s my latest “hush hush money making advice” for you Alvin, you big ol’ daffodil: BUY GOLD!!

      Hahaaaaa! You see what I did there?! I tricked you cuz me sooooo smart πŸ™‚

  5. earthkitten

    I guess my question is how does Avi know Gary lost his shirt
    in a leveraged etf in the oil market? Gary, did you lose your
    shirt in a leveraged etf in the oil market?

    1. Gary Post author

      LOL of course not. We’ve never had more than 20% in energy trades and I’ve moved that down even further to 10% or less.

      He just makes crap up as he goes along.

      It was the same thing for the metal trade that he can’t seem to ever let go of, even though we’ve long since recovered from that and are up 148% now. He’s a joke.

  6. Gary Post author

    Tonight we are seeing again why it’s dangerous to short into the advancing phase of an intermediate cycle. Surprises come to the upside, and sometimes cycles stretch much longer than one expects.

    Many traders destroyed their account trying to short the baby bull.

    In a bull market the safety net is on the long side. You know that the bull will eventually rescue your position if you are long. There is no rescue on the short side in a bull market. If something unexpected happens you can lose it all.

    This was a pretty convincing breakout last week. Not something I would want to try to short.

  7. deak

    Gary, luv your blend of technical & fundamental analysis & money mgt, how do u do it? It’s damn good s***t.

    I am hoping for a 10-15% drop this fall to load up, what r the chances?

    1. Pedestrian

      Kim is a goldbug
      Trump is a dollar bear.

      Omg, they are on the same side!
      ———————————————————-

      Joking aside, it sure looks like the market has spoken where gold is concerned. I would like to say this is all because of North Korea and the markets reaction to his nuclear tests but I just don’t believe that is the case. News doesn’t usually lead the markets and even when it does the effect are tyically fleeting.

      So when I look back at a chart in hindsight it is more usually the case that I can see the current price was already embedded in the pattern all along and the problem with getting an incorrect read on the trajectory was not with an unexpected news event (nukes) but rather with my analysis.

      So the question now is will gold keep rising from here and take out the 2016 highs or will it finally fall as I had been insisting the last few weeks. I wish I knew. For the moment there is not much that can be done as its a trading holiday. The decision comes tomorrow to make an escape from this trade with minimal damage and change sides or just hold on in the expectation gold will not break out above that 2016 high.

      The answer might be found in the behavior of gold and silver stocks tomorrow.

      The bear case looks dead at this time though as golds impulsive moves higher negate one resistance level after another. So perhaps its time to step aside and get the hell out of the way of this thing or join the other camp.

      As an aside, Armstrong had been suggesting a false break-out was in the works and perhaps that is what’s in play. I doubted he was going to be right as gold was already stretched too much for my liking but so far its playing out as suggested. If that is the case though there is no telling how high gold may go from here so getting back into the bullish camp, even at this late stage may make more sense.

      For now the white flag is out.

      It looks like the gold bugs were finally correct after being wrong since the days of Jesus.

  8. victor

    Came to the blog I’m surprised do not see quarrels about criptos. Gary, is it the bubble pop in Bitcoin?
    At least a huge chunk of crypto-market is out with China…, any comments? Thanks.

    1. victor

      whose talking abt ICL when short trend is up? wait till it turns then you will hear even 900$ again….
      Just follow the trend, or if it’s too late in a cycle – step aside and wait.

        1. victor

          LOL, see, it’s so difficult to manage ones emotions. When trend is up it hard to say this, but will be much easier when it turns…, even bear Pedestrian gave up today…., he will start singing his song soon enough… ( :

          1. roadrunner

            pedestrian gave up because he was getting steamrolled, squashed like a cockroach, teeth smashed to a million pieces, thrown out like yesterdays garbage. bear stew. This is what happens when you stand in front of the train.

          2. Pedestrian

            LOL! You are a real comedian Roadrunner. Pedestrian is too smart to get squashed in this situation though. All I have is an initial spec position. I am hardly over committed or invested all-in like some of the other retards here.

            If you follow my comments you should know I wait for a decent buy signal first. Since the gold hourly-chart on Friday posted a slightly higher-high than the prior peak on Tuesday it was a warning prices would exceed my forecast so my enthusiasm was already dampened last week.

            I was fairly specific on this point. Preparing to enter a reversal trade is a waiting game. I did however take a modest position in the belief traders will take gold down when markets open tomorrow.

            I could be wrong. Not worried. I never put myself at risk though.

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