Losers Average Losers – $Study, Discipline, Plan, Process & Passion Win

One of my favorite trading books is Trend Following by Michael Covel. In that book Covel describes a hand written note hanging on the wall behind the desk of legendary trader Paul Tudor Jones. The note read, “Losers Average Losers.”


The note was a reminder to Jones not to add to a losing position. I have come to embrace this philosophy as my experience with averaging down has rarely led to profit and almost always had negative impacts on opportunity cost. I have found that when a trade goes against me, the best thing to do is to sell it for a small loss and move on to another idea. Adding to positions that are in a downtrend turn small losses into large losses. With trading, keeping the losses small is key to Risk Management and leads to survival and profitability.

I have accepted “Losers Average Losers” as a market truth (measured by the proxy of my hard earned money).  So I was startled when I saw Charlie Bilello, a Certified Market Technician who continuously posts fantastic market content, write a post titled: Winners Average Losers.

Charlie makes it clear in his post that he is referring to investors who are trading their accounts on emotion with no trading plan and no understanding of risk management. He writes:

Forget being the next Tudor Jones and stop trading your investing portfolio with emotion. Learn to be happy with simple, boring asset allocation. That means sticking to a plan/process through thick and thin and, wait for it … averaging your losers.

The old axiom – you get out of it what you put into it – applies here. If you are trading the markets on emotion with no process and no plan, I agree with Charlie, you are better off putting your money into an index fund and hoping we don’t see another 2000 or 2008.

But I would argue that if you work hard at finding your edge, develop a trading plan and a risk management plan and exercise discipline in following the process, you can do better. You will not be forced long when the market is in a downtrend and find yourself buying into the teeth of the decline consoled only by how the S&P has performed over various 15 year periods (hoping it will repeat). You will understand how to protect your capital during a correction and, better yet, how to make money when the next 2000 or 2008 inevitably arrives.

As with most things in life, study, discipline, plan, process, and passion win over the long term. The markets are no different; the lessons are just magnified because they are swift and cost real money.


3 thoughts on “Losers Average Losers – $Study, Discipline, Plan, Process & Passion Win

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