Mind Over Markets How to Handle Trading Losses Like a Winner
Nov 19, 2020
01:09:20
!n today’s episode we are going to be discussing how to handle trading losses like a winner because at the end of the day, it’s not about how much money you make but how much money you can keep, and if you can’t take a loss then sooner or later you will take the mother of all losses.
Why Traders Have Such a Hard Time Taking Losses
- As a society, we are conditioned to aim for a high percentage success rate
- A lot of us judge our self-worth on how often we are right which makes it difficult to accept being wrong and taking a loss
- Fear is a stronger emotion than greed; when faced with the potential of taking a loss, we will usually gamble and lose much more instead of accepting the loss for what it is
- Trading losses are guaranteed, but newer traders are often surprised when they happen
- Few traders focus on risk before reward so when they place a trade they focus on potential profits and are not expecting to take a stop; placing a trade is not accepting risk, placing a trade is taking the risk
- Your beliefs and attitudes about what a loss means will have the biggest impact on you
- If you take a loss personally and believe it affects your self-worth, then you will naturally have a difficult time taking a loss
- A perfectionist trader will often see a loss as a failure and setback which makes taking any kind of loss a real challenge emotionally
- Taking losses is not something that we enjoy but we have to accept the fact that losses are part of trading
- Once you can accept this fact then you will be able to release the fear around it
- Before a trader can accept losses, they must be able to believe that they can produce profits, otherwise, each loss will seem like a roller coaster of emotions between life and death
- The only way to believe that a trading plan can produce profits is to test it in the markets and to build a track record; when there is a track record of success then the trader will understand that result of any individual trade means very little
- Without a track record, trading losses take on a much bigger meaning
- Losses are part in parcel of trading; the first step to handling them like a winner is to accept that challenges and setbacks are part of achieving anything worthwhile
- Be grateful for the loss
- Remember that the result of any individual trade you take is irrelevant to the big picture
- If you take 1000 trades over the course of a year, how important is a single loss in the overall context of things? Not very important!
- If you detach yourself from the result and see a loss as a simple data point - something to learn from - then you will have an easier time accepting a loss for what it is
- Create a persona for when you are reviewing your trades at the end of the day when you will be grading your execution of the plan
- Imagine being a risk manager that is standing over your shoulder as you replay and evaluate your losses
- This can remove the “emotional” connection to the event so that you can focus on evaluating and identifying the key areas of improvement going forward
- Take a moment to journal the trade immediately and reflect on how well or poorly you followed your process
- Take a moment to give gratitude to the markets for the learning opportunity
- You can give yourself a timer to stay out for a certain amount of time
- Take a deep breath, identify your next best trade, and fight back!
- Ask yourself; What have I learned from that experience? How will I use it to make me a better trader?
- See the implementation of the learning from the loss as an investment in your future trading career
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- Catch up with our earlier episodes: Mind Over Markets Podcast