There are only three types of trading losses.
They’re not as obvious as you might think—but knowing what they are is vital to trading consistently.
Avoidable yet unavoidable
Here’s a trade loss of mine from Wednesday.
Returning from a break at the screens, I failed to identify the current narrative correctly and missed several key points of evidence.
I rushed my process and missed what was staring me in the face. A losing short trade was the outcome.
And while I should know better… I’m not perfect. I make unforced errors every trading day.
Unforced errors
But here’s what really matters:
You will make errors. Everyone does. The difference is whether they bleed you slowly—or barely leave a mark.
When you trade from a playbook of signature trades—they reveal early when a scenario isn’t playing out. You can exit before real damage is done.
But that small cost is only a fraction of the benefit.
A big loss doesn’t just cost money—it shakes you. Not only do you face the challenge of making it back, your confidence drops and you second-guess yourself. Hold that thought…
Looking again at the trade loss, two things stand out:
- Avoided was a brutal loss when the price moved quickly and vertically higher by exiting swiftly.
- Advantage was then taken of the strong move up by entering a long position.
The right trading framework shows you what won’t work—fast.
And when it runs on multiple points of evidence, you spot your misreads early. This way:
- A small loss isn’t a challenge to make back.
- A small loss doesn’t rattle your confidence.
- You don’t hesitate on the next trade.
You’ll never trade flawlessly. No one does. But you can trade in a way that absorbs mistakes.
if you’re averaging 3–4 unforced errors for every 20 trades—that’s exceptional. It’s not enough to stop you from running a profitable trading business.
However, if you’re making eight or more errors every twenty trades, then it’s the next kind of loss.
Donations
There are two types of traders. Winners and losers.
Winners don’t win every trade but win overall. While losers don’t lose every trade but lose overall—having some winning trades is what keeps losing traders continuing to trade, even though they lose overall.
Yet, we can take this one step further.
You don’t trade to make money—you trade to take it.
Unless you can see how, where and why losing traders lose (so you can take their money), then you’re a donator, not a taker.
But even if you do know how to identify losing traders, taking their money won’t happen with intellectual understanding alone—no different to mastering how to ride a bike.
When you fully embrace ‘you don’t trade to make money—you take it’, you appreciate why trading demands repetition—to execute precisely in trades you already recognise and understand.
Because it’s the price of taking money from the many not willing to pay it.
Exclusivity tax
The third and final loss is a tax you pay to keep the game exclusive to the rare minority who are winners.
None of the signature trades from my playbook work all the time—making the outcome of each trade uncertain and their success probabilistic.
But it needs to be this way.
We’re wired for certainty. We find probabilistic thinking challenging because it’s unnatural.
Yet they’re the root cause of trader behaviours and actions that pay us:
- Fear
- Impatience
- Lack of confidence
- Procrastination / hesitation
- Over-leverage
- Mental exhaustion
- Over confidence
- Binary thinking
- Hope
- Greed
- Discomfort of the unknown
But how much tax you pay comes down to how fast your process exits trades that don’t pan out.
Some losses tell you what you missed.
Others tell you what you’re still not seeing.
The difference is usually in the feedback from an experienced trader.
Something to sit with, next time you’re sizing up a loss.
