How you define an outcome (losing capital), changes future outcomes.

(From the archives)

Redefining or changing a word in a sentence can provide the necessary psychological shift to see things in a different way. This different perspective can lead to different results (hopefully positive). Probably the most common redefined word in finance is “Loss” which is turned into “Investment in Education” or “Tuition”. I am making the assumption that a “Loss” means, the losing of capital. The reason I hate this redefine is because it is a passive, indiscriminate shift. Not all losses are educational and not all losses have equal consequences. If I put my hand on a hot stove and get burnt, that was not a learning experience because I already knew the outcome. Putting my hand on a stove does not have the same consequences as throwing myself in a fire.

How do I define “Loss” or having less capital? It depends on how I came about having less capital.

Having less capital because of something I know is a loss.
Having less capital because of something I should know is an investment that may turn to a loss.
Have less capital because of something I do not know is an investment.

A side note: If I put my hand on a hot stove and it does not burn (by miracle), the next time it will hurt twice as much because of expectation (how gross is water if you think it is milk) and having to make a decision if it is a rule or outlier. You basically have to start over on learning something about yourself, the market, and how they interact in those instances. Trading works the same way, you can make money by making a mistake (breaking rules) or being lucky but I promise you it will be some of the most expensive money you have ever made.

My response in the comment section on how I evolved into this thinking and the readers problem with pulling the trigger:

I was really wrapped up in the past in the beginning. Well more correctly I was wrapped up in the way the past made me feel. Our brains are awesome but we are more inclined to notice the things that affect our well being and our closest to our beliefs. It think it screws with our perceptions and memory.

Some examples:

Buying a new car and then seeing them everywhere. It is not necessarily that there were any more or less we are just aware of it.

Listen to any sportscaster, athlete has made x amount of putts, free throws, field goals, etc in a row and then the athlete misses. Then the other announcer will say he jinxed them. Rewind the tape, the announcer was talking about it many times before the miss, it is just that we are most aware when we are right.

In trading we focus on the outcome or lack of the outcome, not how we got there. There was a reason you did not pull the trigger. Mostly we are not ready yet and SOMETIMES because it teaches us a lesson that we will need later. Although I may write like I have overcome some of the things I talk about in my blog I still fight them most days. It is a subconscious fight though. Were there times when you did pull the trigger? If you did I am sure there were some losses involved. Our brains are excited by potential or ideas especially when it comes to money.

I do not remember ever trade I take, but the emotional ones are easiest to remember. This intentional emotional separation leads to intuition. 

At the end of day, did I follow my rules? After I am out of the market, the market does not matter. If you feel like you are leaving some on the table adjust the plan. But until you change your plan (feeling what it feels like to be in that trade, making decisions or reacting to the set of data in front of you at that time), I believe, you will have a propensity to remember the one that got away. That has been my experience.

I would rather be watching a trade I wished I was in than in a trade I wish I was watching.

Thanks for the comment.

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