How To Deal With Trading Losses

Although taking losses in the market are inevitable, if you haven’t fully accepted that trading is based completely off of probability, you will have a rough time becoming a consistent trader.

Traders can experience an influx of emotions at any given moment while dealing with market conditions. These emotions are based off of attachments that we’ve made to certain outcomes.

Whether it’s the overwhelming excitement from when your trade smacks its take profit or the gut wrenching feeling of disappointment when your trade taps your stop loss, these emotions can become the “norm” if we don’t learn how to control ourselves.

In order for anyone to achieve a state of consistency in the markets, they must first achieve that state within themselves.

A trader must remain emotionally neutral no matter a win or loss. This is the only way to avoid the trading errors that can arise after intense emotions.

For example, If you’ve just won a few trades in a row you may get a feeling over confidence which can then result in overlooking data that the market is putting right in front of you, ignoring your trading plan, holding trades that have clearly given you reason to exit, and many more emotionally driven errors.

Whilst a trader that has his emotions in check and understands that these wins are just part of a bigger game of probabilities, can remain focused on performing his strategy to the best of his abilities.

So, how can we become this “emotionally neutral” trader?

  1. Truly come to terms with the fact that the market can do whatever it wants, whenever it wants! It doesn’t matter how bad you “think” or “want” the market to do something in particular. Our ego causes us to seek control over the markets when in turn we should be seeking to flow with the market. When we get tied up in predicting the market, we start craving to be right which in turn makes us more emotional to the outcomes of our trades.
  2. Understand that trading success shouldn’t be measured off of your wins and losses but on how well and consistently you execute your trading plan. Every trading strategy has a set probability and the only way to see that probability come to fruition is to allow something called “The Law Of Large Numbers” play out. Which means you have to execute your plan consistently, time and time again,  whether win or loss.
  3. Lower your lot size. I see this issue more in new traders more than any others. Novice traders believe that the larger their position, the quicker they will become this rich trader they’ve visualized for themselves. The truth is that rushing into larger positions than you are ready for can be detrimental not only to your mental state but also your trading account. Seeing your money diminish quickly in front of your eyes from rushing your learning process can cause strong emotions to occur. Learn to love the process and the money will follow.
  4. Incorporate meditation into your daily routine. Meditation has been proven to have amazing benefits ranging from relieving stress, increasing productivity and clarity, to managing thoughts and emotions better. For more information on how to meditate check out our “Bringing Mindfulness To Trading” blog post.


Photo Credits: Starline