At least once a week, I get asked if I can teach some kind of a “zero loss strategy”. 

It’s a very innocent question and I completely empathize with those who ask it. However, my situation is that of a gym instructor who is constantly being asked if I can offer a pain-free strategy to build muscles. You can imagine my frustration.

If the idea of building a strong physique without incurring any pain sounds ludicrous then so should be the idea of being a profitable trader without incurring any losses.

There is only one “Zero loss strategy”

Yes, there is one zero-loss strategy in the stock market and that is to “sit on cash”.  I promise you will never lose a dime if you sit on cash and don’t take a trade. I am guessing you do want to trade and so sitting on cash is not an option.

Before you curse me and go back to Google for finding another article where the “real secrets” of no loss strategy are revealed, just hear me out. You will thank me later.

I am not trying to make fun of those who are risk-averse. I am the biggest proponent of risk management you would find. What I want is to have a serious discussion about this “zero loss” mindset that beginners have. 

But why are losses inevitable? 

Losses are inevitable in trading because traders deal with probabilities. There are hundreds and even thousands of variables that move the market and it is impossible for any trader to know them all. A trader is just operating within the bounds of his knowledge and skills.

Even the most astute traders I have met and worked with have a success rate of about 60-65% (and I am talking about traders who earn in 7 digits monthly).

It means even the best traders out there lose money 35-40% of the time.

The real question is not whether we can avoid losses

The answer to that is obviously “no”. The real questions beginners should be asking are:

• Do I have a strategy that has a consistent success rate?
• How much do I make when I am right?
• How much do I lose when I am wrong?

Trust me, if you’re asking these 3 questions, you are on the right track. 

Understand your hard-wiring

Let’s take a moment to acknowledge that nobody likes to take a loss. I have been trading for over 16 years and even now a 1 rupee loss pinches me. Of course, my rational brain shrugs it off but my emotional brain cringes with every red trade. 

We all have these 2 brains within us. Unfortunately, the default setting is such that the emotional brain has disproportionate power over the rational brain and the boss never wants to see a loss.

Successful traders, on the other hand, train their rational brains to be the dominating part of their personalities. It doesn’t mean that the emotional brain goes away- it’s still out there cringing but it doesn’t have any controlling power.

What does it all mean?

Every trade ends up in one of the following:

1. Small profit
2. Small loss
3. Big profit
4. Big loss

Your job as a trader is to LOVE the first 3 (yeah, even the small losses) and make sure you never incur a big loss. As a corollary, don’t go looking for a zero-loss strategy; go looking for a strategy that has a higher success rate and that never incurs big losses.

I am waiting for the day when instead of “zero loss” people ask me about “small loss strategy”. 

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