It's Not a Loss Until I Exit, Right? ... Wrong!

There are a couple of day trading sayings that amateur traders tend to believe, but that professional traders laugh at because they are a joke. If you are a trader that has used these sayings, or think that they might be true, don't feel bad, but do think again, because they are one of the quickest ways to an empty trading account:

It's Not a Loss Until I Exit

This saying means that a trade that is losing money (i.e. has a negative profit / loss) is not really losing money until the trade is exited (when the unrealized loss becomes a realized loss). The theory is that by holding the losing trade, the loss can be avoided. In reality, the only thing that happens is that the loss becomes bigger until the trader capitulates and exits the trade anyway.

It Will Come Back

This saying means that a trade that is losing money will come back into profit if the trade is held long enough (i.e. the price will eventually move in the trade's direction). Unfortunately, this does work sometimes, which reinforces a new traders belief in the saying. However, eventually it will not work, and the loss will be so big that the trader's account will be wiped out (probably because their brokerage finally exited the trade for them).

When Should These Sayings Be Used?

The only value that sayings like "It's not a loss until I exit" and "It will come back" have, are as a joke (albeit not a very funny one), or as an exit signal. If you are in a trade, and you find yourself thinking "It's okay, it'll come back in a minute", you should click your exit button (which hopefully uses market orders) as quickly as possible, and be glad that your account has survived to trade another day.