I never understood why traders held losing trades for too long. Our goal is to make money, isn’t it? And yet, we’ve all held onto something negative for too long; a losing trade for a few days, a bad marriage for a decade, smoking for a couple of decades, or any number of other things that make us consistently unhappy.
Cutting your losses is not just for traders. This philosophy can be applied to just about every area of your life. While I typically talk about this in a financial context, it also relates to relationships, health, jobs, nutrition, and habits.
If you stay in a losing ‘situation’ of any kind for too long, you limit your future probabilities. Every day that you stay mired, you decrease your chances of finding something that is right for you. So the question becomes, how do you know when it has been too long? Do you face the fear of letting go and make a change for the better?
If a specific behavior is not taking you in the direction of success then you are going toward failure. If you are not profiting from a situation today, then what makes you think you will profit from it tomorrow? Life is all about trends, and trends typically continue in the direction they are traveling. If our lifestyle today is making us unhappy, the odds are that we will be unhappy with it again tomorrow and the next day. We have to consciously stop doing what causes the loss of our happiness and move toward what brings us joy.
In relationships, the biggest mistake is that people hope that their partner will change, rather than evaluating the status of their relationship.
In health, our habits toward exercise and diet must improve in order for us to see better overall wellness.
Professionally, staying in a bad job and not looking for the right opportunity, eats away at our happiness and wastes precious years.
One of the most powerful habits we can develop in our lives is the ability to cut our losses short. By eliminating a losing situation, we can put all our energy and time into a winning opportunity. Typically, when a person’s ‘pain of same’ exceeds their ‘pain of change’, they will do something positive for themselves and their future. If we can expedite the process and cut losses when we know that we are wrong, we conserve our time. Time is our most valuable resource, and it can’t be recovered once lost.
People fail to achieve their life goals because they allowed their path to success to be blocked by a log. Instead of removing the log from their path, they stayed on the wrong side of it, unwilling or afraid to change. They thought they loved the log. The log was good enough for them. What if they got rid of the log? Would the next log be any better? The log was more comfortable than traveling any further down an unknown road.
Our fear is that we may leave a bad situation, only to end up in a worse one. Our greatest fear should actually be that we waste or lives staying with losers, when the winners are on the other side of the log. We just have to move it out of the way.