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Hirschhorn: Good Losses, Bad Losses

Market coach Doug Hirschhorn, PhD, discusses the differences between taking good losses and being saddled with bad losses.

It's a fact that not all losses are created equal. There are good losses and bad losses, and it pays -- literally -- to know the difference. Here are four basic reasons why traders find it difficult to take a loss:

  1. Ego –- taking it personal.
  2. Financial pressures to produce -– After all, you trade to make money.
  3. "Trading to be right" mentality-- No one likes being told they're “wrong.”
  4. Traders are competitors -- Taking a loss takes you out of game.

It's important to understand there are good losses and bad losses. Bad losses are generally due to hesitation, doubt or panic. And those types of losses can decrease your confidence going forward.

On the flip side, good losses actually occur when you're in control, trust yourself and stick to your game plan, which includes following your stops. Good losses can help build your confidence in the long run and take you closer to achieving a level of greatness as a trader.

Remember, at the end of the day, your best trade may be the one where you take a loss.

Think better, invest smarter.

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Doug Hirschhorn is the chief executive officer of Edge Consulting, a firm specializing in “Peak Performance Coaching.” He holds a Ph.D. in Psychology with a specialization in sport psychology, and has offices in New York and South Florida. His client list includes elite athletes as well as many of the largest banks, hedge funds and financial institutions in the world. Doug is presently at work on his new book, 8 Ways to Great (Putnam, 2010).

Have a question for Doug? You can reach him through his Web site, DrDoug.com

Disclaimer: Doug Hirschhorn's expertise is in the psychology of achieving peak performance. He is not a financial advisor and does not make trading or investment recommendations or provide trading or investment advice. He is an expert on the mental game. Although Doug Hirschhorn has a Ph.D. in Psychology with a specialization in sport psychology, he is not a licensed psychologist and does not provide therapeutic, clinical or counseling services.