A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul.
Humans are risk averse. No liking losses we will do almost anything to avoid taking them. Losses are painful, and there is a strong human need to seek out pleasure and avoid pain. Traders tend to come up with many ways of denying they have a loss, such as holding on to a losing trade and hoping it will turn around, or keeping losses on paper to avoid acknowledging them. However, you will trade more effectively and profitably if you can take losses as quickly as possible, move on and make a new trade. In his book, "The Disciplined Trader," Mark Douglas suggests that you close out losing trades immediately, the instant you perceive that a trade is a loser. The best way to do this is to have a clearly defined trading plan where you predefine where you will enter and exit a trade. Once you have a clearly defined plan, you can execute the trade without hesitation. There is nothing to consider, weigh, or judge and consequently nothing to tempt you to hesitate and be consumed with self-doubt.
Reprint from Prudent Trader archives