A trader who didn’t make mistakes would own the whole world in a month.” – Jesse Livermore

If you see a trader on social media who never loses on a trade, then run from them. They are not being honest. Even the best traders generally have 60% – 70% win rates. Some of the best day traders only have 80% win rates. Many successful trend followers can have low win rates under 50% and still be profitable because they ensure their losses are small and their wins are big.

Losing streaks and drawdowns are also inevitable for real traders. The world’s best money managers have drawdowns in capital of 10%-20% from equity peaks. This isn’t failure,  it’s normal. Even value investors like Warren Buffet have underperformed the indexes for years. Luckily, Mr. Buffet is not on Twitter to be trolled when he buys a value stock and it continues to go down for months.

  • Day traders lose money when the market moves suddenly against their position.
  • Buy and hold investing can have losing decades, like 2000-2010, even though it is sold to the public as investment nirvana. When a buy and hold investor was down 50% in March of 2009, it was real money and was not a pleasant experience. I know many buy and hold investors personally sitting on $25,000 – $40,000 losses in their 401Ks and IRAs this year. Believe me, they feel the pain.
  • Trend followers lose money in range bound markets and during whipsaws, but make great money in strong trends.
  • Most swing traders start losing money during trends and breakouts of trading ranges.

Losing trades is part of doing business for real traders. How we manage our losses and drawdowns is what keeps us in business. Most new traders quit trading because they don’t understand that part of trading is losing. In trading, good losers are the ones that go on to be winners, and those bad at losing end up moving on to other things.