Treating your trading as a business means accepting the fact that it is just business and you should not take it personally. When you lose money on a trade, it is not a personal attack on your character or a conspiracy by the underlying security to ruin you. Losses are a part of trading and no matter how successful you become, you will always experience losses. That is why we focus so much attention on risk and trade management, so that those inevitable losses will not hurt you.
Traders who take losses personally turn into emotional investors who resemble vigilantes. They have been wronged by the market and are out for justice. For example, assume an emotional investor purchases a long call on XYZ and instead of XYZ moving higher, it drops in price. The business-like trader simply fires the underperforming employee and looks for another trade opportunity. Emotional investors wonder how they can make their money back on the position. XYZ has cost them money and they feel they must make back their losses on that stock. Emotional investors usually take on more risk to get revenge on XYZ and, more often than not, end up losing even more money on a trade that should have been closed out sooner under a predetermined exit strategy.
There is no place for revenge in the business of investing. Taking losses personally is extremely unprofessional and will definitely cloud your judgment. You will trade on anger and resentment and depart from the principles of risk and trade management. We in no way recommend you take losses lightly, but losses are a part of trading; you can either learn from them and improve your performance or embark on a trading vendetta that will cost you even more money than what you lost on that one position.
Whether you are a beginner or an advanced trader, at the start-up or the mature phase, you must continue to act like a trading professional. Keep your emotions in check as much as possible by not taking any losses personally. The market is not your enemy; the market is where your business will make money. If a stock does not move as expected and costs you money, then spend the time to analyze why the position did not work so you can make better decisions next time. That is the professional approach.
The Option Trader Handbook – George M. Jabbour, PhD – Philip H. Budwick MsF