Wednesday, June 17, 2009

COST OF DOING BUSINESS

While having a chat with a trader yesterday the subject of losses came up. This particular trader summed it up pretty well by saying, "to me a loss is just a business expense." That simple statement had profound meaning to me. Every business has a "cost of doing business" factor in their business model. They allocate for travel, office supplies, employees, benefits, utilities and other expenses. There is a predetermined budget for each of those items. In the good times the budget may grow and in slow times it will likely shrink but the point remains the same. After these costs are factored in, a company expects to show a profit monthly, quarterly and yearly. Why should it be any different in trading?...yet many traders focus on the losses rather than the overall picture. As traders we will incurr losses. How we manage those losses is, of course, up to us, but we can cut the loss short or let it run to our full stop loss. I guess that would depend on your style and methodology. My point here is that we are going to have losses so accepting them simply as costs of doing business it can totally change the perspective. A loss becomes less painful and more accepted, allowing us to concentrate on the big picture of making money based on our overall performance monthly, quarterly and yearly. Maybe we should change the terminology from loss to expense. Hmmmm, "I had 3 profitable trades and one expense today." Sounds better already.