In Trading, Losing Is A Feature, Not A Bug

One of the best things a trader can do is run the strategy tester function in MT4 on any 1-minute chart. Ideally, you’d like the test result to be positive in the end, not because it will show you how to make money, but because of what it will teach you about the nature of trading.

The one minute chart, as I’ve said many times in the past, is an amazing hack that allows you to look at hundreds of trades over just a few weeks of data. So run the strategy in MT4 and watch the graph dynamically build itself in real time as each trade gets added.

One thing you will never see is a straight 45-degree line running from left to right. There are no regular paychecks in trading, What you will see instead is the equity curve rising 10% in an uninterrupted fashion only to drop back to zero and then below it. You may see that a few times during the lifespan of the strategy and every time that happens more than 90% of you will stop trading the system. Yet in the end, after a few months or a year or even a few, the system could end up being incredibly profitable.

All of us come to trading with an absolutely wrong model of how things work. Sure, we can imagine, one, two maybe even three losses in a row. But after careful study, hard work and discipline we imagine that we can eliminate those mistakes and embark on smooth consistently profitable money making adventure.

Wrong.

To borrow a line from the software business -- losing is a feature, not a bug. In fact, almost all great investors lose or underperform for long stretches of time. Warren Buffett underperformed the market by a whopping 54% in the late 1990s and has had several drawdowns of 40% in his career. Almost no one who tried to copy his trades would have stayed with him through the losing times and yet his long term record is one the best ever.

That’s why the single greatest lesson any trader can learn is not risk management, or strategy selection or market analysis. All of those are crucial to long term success but will be utterly useless unless the trader accepts the fact that stomach-churning losses will never stop.

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