Dealing with losing trades is probably one of the most difficult things for traders. And, unfortunately, being wrong is something every trader has to deal with on a regular basis; it can’t be dodged. This post guides traders on how to get better accepting losses. Sounds good? Please read on.
Why is It So Difficult to Deal with a Loss?
When you take a loss in trading, the market is telling you that you are wrong, that you failed. Not a lot of people like to be told they are wrong, or to fail at something. It hurts even more when you’ve done all your due diligence. Trading also involves money, which makes being wrong even harder.
When we’ve discovered trading, we likely had very high expectations and dreams. So it makes sense that taking losses will bring up a lot of negative feelings and emotions, like: anger, frustration, doubt, disappointment, stress, fear, and feeling like a failure.
In short, taking a loss means you were wrong, and nobody likes to lose money or be told they are wrong. It goes against human nature.
Some Pre-Requisites:
Getting better at accepting losses starts even before you place your first trade. The following has to be in place:
- You must have a trading strategy with a proven edge. Preferably you would’ve back tested it yourself so that you know all the ins and outs of the strategy… as well as its stats.
- If your goal is to trade for a living, you’ll have to treat and setup your trading as a business.
- You finances have to be in order. Any one trade shouldn’t have any meaning attached to it, i.e. needing to pay rent, wanting to impress someone, the desire to quit your job and work for yourself, etc. You shouldn’t trade with scared money.
How to Get Better at Dealing with Losses:
Your strategy will tell you at what price level your trade is wrong. This is the price level where you should set your stop loss and it should be entered the moment you place a trade. Some experienced traders trade without mechanical stops, newbies should never do this.
Remember, the market can’t be predicted with 100% certainty. This means there’s always the risk that of anyone of your trades can end up being a loser; you must internalize this and make peace with it. With that said, only you, the trader, know your risk tolerance. You have to come up with an amount that you are totally comfortable losing on any given trade. This means that if you are wrong on a trade, you can fully except that loss without blaming anyone, anything, and without regret. Also, keep in mind that it is more than possible to have a couple of losses in a row.
Don’t attach a meaning to any one trade (win or loss). Again, you can’t predict the outcome of any particular trade. Instead, focus on the process of trading. Make sure you execute your strategy to the best of your ability. Forget about short-term results, think long-term. Don’t focus on one trade, instead focus on your results over a series of trades.
Lastly, journal all your trade, whether it’s a win or loss. This will help you big time. If you do it long enough, you’ll come to find your strengths and weaknesses – you get better by eliminating mistakes, improve weaknesses and build on strengths. Also, you’ll get real life proof that one trade doesn’t matter, but a series of them do.
Other Useful Tips:
- Minimize screen time, especially if you trade the higher time frames. Once a trade is placed, you should let it do its thing. The more you watch a trade, the greater the chance that you will want to interfere.
- A string of losses can hurt, a lot. And not just for new traders, but also for experienced ones. There is nothing wrong with taking a break for a while. The markets aren’t going anywhere. When you come back, start small.
- Have a rule to reduce your risk after each losing trade. This will reduce your overall drawdown and will make consecutive losses easier to stomach.
- Cultivate self-awareness. Practicing mindfulness is an excellent way to achieve this, and it doesn’t require anything complicated. You can pick one of the many simple (and free) methods out there and begin.
- Curate who you follow on social media wisely.
- Stop comparing yourself to others. We are all different. We are all at different stages of our trading journey. We all learn differently.
Finally:
You are going to have wins and you are going to have losses. Don’t treat them as good or bad, don’t label them. Treat each trade as a singular data point as part of a larger series of trades. Give your strategy a fair chance.
Thanks so much for reading. I trust you found this post helpful. Good luck with your trading.
Thanks and Regards,
Trading SOS SOS
