Good Losses and Bad Wins
A good loss follows the plan and stays within the planned risk — sometimes it is simply an unlucky trade. A bad win makes money while breaking the rules — a lucky trade. Rewarding bad wins teaches habits that eventually cost money.
A trade can follow every rule and still lose — that is a good loss. Another can break the rules and make money — that is a bad win. Judging trades by process instead of outcome stops luck from teaching you bad habits.
- Reading time
- 3 min
- Also called
- Process vs outcome, Good trades and bad trades, Lucky wins
- Updated
Good losses and bad wins in plain words
The SEC's investor bulletin warns about the disposition effect: holding losing investments too long and selling winning investments too soon.1 A good loss is the opposite — a planned exit at the planned risk.
Having a Trading Plan only helps if you have the discipline to follow it.2
A journal shows whether you followed your strategy or just reacted to the market — that is how you separate a bad win from a good loss.3
How to grade trades by process
Plan first
Write entry, Stop Loss, target and size before the trade.
Grade the process
Score whether each rule was followed, separately from the result.
Grade the outcome
Record the result in R as a separate field.
Sort into four boxes
Good win, good loss, bad win, bad loss.
Review bad wins
Review the journal for habits that keep leading to losses.3
Reward the process
Treat a rule-following loss as a success of Trading Discipline.
Worked examples
Example 1 — Good loss
Good lossA hypothetical trader enters on plan, the stop is hit at −1R as planned.
| Rules followed | Yes |
| Result | −1R |
Sticking to the plan avoided an unnecessary larger loss, so this is a good loss.2
Example 2 — Bad win
Bad winA hypothetical trader removes the stop, the price drops then recovers, and the trade closes +2R.
| Rules followed | No |
| Result | +2R |
The money was made while reacting to the market rather than trading the strategy, so it is a bad win to review.3
Example 3 — Bad win repeated
Habit costs moneyThe same hypothetical trader removes stops again, and this time the price keeps falling.
| Planned loss | −1R |
| Actual loss | −6R |
Refusing to admit the mistake and holding on turned a small, planned loss into a big one.4
Good loss vs bad win
| Aspect | Good loss | Bad win |
|---|---|---|
| Rules followed | Yes | No |
| Result | Negative | Positive |
| Lesson | Process works; variance happens | Luck hid a mistake |
| What to repeat | The process | Nothing — fix the habit |
Where this helps
Journal reviews
Grading process in a Trading Journal.
Coaching
Discussing decisions, not just Profit and Loss.
After streaks
Keeping calm through normal Drawdowns.
Rule changes
Changing rules on evidence, not single results.
Advantages and disadvantages
Advantages
- Separates skill from luck.
- Rewards discipline.
- Reduces emotional reactions to single trades.
- Makes reviews more useful.
Disadvantages
- Grading process takes effort.
- Rules themselves may be flawed.
- Bad wins feel good, so they are hard to criticise.
- Needs honest self-scoring.
Going deeper
Read as far as you need. Each level builds on the one before it.
Outcome is not process
Beginner
Because a journal records decisions as well as results, you can grade the two separately.3
Why bad wins are dangerous
Intermediate
The SEC-published review finds the disposition effect widely operative and counterproductive; a bad win that came from holding a loser reinforces exactly that habit.5
Emotions
Advanced
Even a careful plan can fall apart in seconds when panic or euphoria takes over.4 Scoring process helps you notice when that happened, even on a winning trade.
Common mistakes
Celebrating every win
Some wins were rule breaks.
Blaming every loss
Some losses were well executed.
Changing rules after one trade
Single results are noisy.
Skipping the process grade
Then luck drives learning.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A good loss follows the plan.
- A bad win breaks the rules.
- Grade process and outcome separately.
- Bad wins build costly habits.
- Reward discipline, not luck.
Frequently asked questions
Is a good loss still a loss?
Should I give back a bad win?
What if my rules are bad?
Further learning
- Trading Plan
The rules to grade against.
- Trading Discipline
Sticking to rules.
- Trading Journal
Where grading happens.
- R-Multiple
Outcomes in units of risk.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- SEC (Investor.gov). Investor Bulletin: Behavioral Patterns of U.S. Investors (opens in a new tab) Checked .
- IG. Six financial trading biases that may cloud your judgement (opens in a new tab) Checked .
- CMC Markets. Trading Journals: The Missing Link in the Trading Process (opens in a new tab) Checked .
- CMC Markets. Trading psychology explained: The mental side of trading (opens in a new tab) Checked .
- SEC (Library of Congress report). Behavioral Patterns and Pitfalls of U.S. Investors (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.