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7 Trading PSYCHOLOGY & DISCIPLINE Rules To Deal With Losses (The Winning Mindset of a Trader) - YouTube
Channel: The Secret Mindset
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Itâs impossible to trade or invest and not
find yourself into a losing position.
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Thatâs just the way things are.
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And a large trading loss can be devastating
â not only financially, but emotionally.
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As defeating as losses feel, how you react
to a big loss is more important than the loss
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itself.
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Inexperienced traders suffering a large loss
can become hijacked by their emotions.
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Some may try to trade through the pain, often
creating more turmoil for themselves.
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Some may withdraw from the market, to avoid
thinking about it.
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Others may try to âtrade in revenge,â
determined to recover the losses.
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None of these reactions are constructive.
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In fact, they can be destructive if you donât
learn how to handle losing trades.
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Whether it was an obvious minus in your strategy,
a lack in discipline, or any other reason,
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nearly every trader will face a big loss (or
several) in their career.
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After a losing streak or big loss, you may
begin to question yourself, which leads to
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the typical problems many new traders have,
like getting out of trades too quickly, holding
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on to them too long, skipping trades with
the fear of losing, or getting into more trades
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than you should in an attempt to get some
winning trades.
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One major difference between successful traders
and failed ones is how they handle trading
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losses.
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Successful traders treat losses as an opportunity
to learn and improve their trading.
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Coming back from a large loss is challenging,
but success is never accomplished by ignoring
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trading losses.
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Losses â especially substantial ones â can
be opportunities to become a more skillful
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trader.
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Here are 7 rules successful traders take after
a loss to become emotionally stronger and
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more disciplined:
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1.
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Never let a bad day cost you more than you
make on an average win day
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Knowing how to lose properly is a must in
a long and prosperous trading career.
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If you average, letâs say, $200 on your
winning days, don't lose much more than that
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on a bad day.
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Control the downside.
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Knowing how to minimize risk is the most important
aspect in trading.
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There are really only 4 possible outcomes
to a trade or investment: A big win, a small
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win, a small loss, or a big loss.
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As long as we ELIMINATE the big loss from
our trading days, we can live comfortable
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with the other three.
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Risk Management is the primary cause for a
successful or unsuccessful trading experience.
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A sound risk management can yield a steady
increase of profits, while a poor risk management
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can wipe out an account in a very short period.
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If you follow the 1% risk per trade rule,
a precise stop loss level presets that 1%
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value and youâd know beforehand the amount
you risk losing should your trade turn negatively.
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And this goes hand in hand with the second
rule.
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2.
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Know the stop-loss level before you ever get
into the trade
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The stop-loss is a simple tool, yet so many
traders and investors fail to use it.
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Whether to prevent excessive losses or to
lock in profits, nearly all trading styles
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can benefit from this trade.
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Think of a stop-loss as an insurance policy:
You hope you never have to use it, but it's
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good to know you have the protection should
you need it.
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So, always use a stop loss and know its location
before you ever get into the trade.
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Also, never widen your stop losses when the
market moves in negative territory.
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Know that regardless of what happens, there
is another trade around the corner.
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If your trading strategy relies on the success
of one single trade, itâs a very bad trading
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strategy.
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Remember that trading success is the accumulation
of many successfully, managed, both winning
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trades and losing trades.
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3.
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Donât involve in revenge trading
A big loss causes all sorts of inner conflictâa
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need for revenge, fear, anger, frustration,
self-hate, market-hate, and the list goes
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on.
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After a big loss, there's no way to trade
with a clear head.
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There are more than 250 trading days in a
year, so there is no rush to get back in there.
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If you do so, you basically revenge trading.
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Rather than looking to your strategy and make
sensible decisions around the incident, you
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jump straight back in.
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This is dangerous for your account for two
main reasons.
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First, it forces you to throw your trading
discipline out the window.
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It shifts your focus from your trading process
to trying to make enough money to recover
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your losses.
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Trading based on emotions and luck is not
trading.
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Itâs gambling.
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Itâs also a lose-lose situation.
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If you lose a revenge trade, you increase
your losses even more with a trade that you
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had barely planned for.
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If you win, then youâre believe that trading
on guts and emotion works and youâre going
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do it again.
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So donât do it.
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4.
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Accept responsibility
If you suffered a large loss; be sure to own
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it.
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Donât brush it aside, hide from it, or blame
the âsmart moneyâ for your loss.
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There is always an excuse for a losing trade,
but as traders and investors, we must accept
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the risks.
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Until we accept that we are responsible for
whatever happens with our orders, the same
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thing will happen again.
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Accept responsibility and figure out what
could have been done differently.
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This will help reduce the chance of it occurring
again.
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It is also healthier than blaming other factors
for your mistakes.
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Blaming others is admitting you don't control
your own trading, and if that is the case,
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you shouldnât be trading at all.
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If you control your trading and investing,
then you can fix it.
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And is always something that can be done.
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It may involve changing markets, changing
your strategy or your trading style.
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If you find that scalping the 1-min chart
brings you a lot of losses, try swing trading.
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The solution is there; you just need to find
it.
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5.
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Stop trading for a while
Sometimes, itâs better to take a break to
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figure out what went wrong.
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Do those things so that you can get back to
a better mindset in which you can refocus.
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After that, assess what happened by reviewing
events carefully.
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Think about where you fell short.
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For example, did you take too much risk?
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Was the trade well-planned?
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Were you mentally sharp, or did you hold a
losing trade hoping to avoid a loss?
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Taking a break from trading is one of the
hardest things to do, but itâs a smart move.
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Wait for the conditions to improve.
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Preserve your cash, save your sanity and focus
on other things.
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When the conditions improve, so will your
results.
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Remember: the market will not disappear tomorrow.
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Nothing terrible will happen, on the contrary
â during this time away from charts you
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will likely to come up with new, better ideas
on how to improve your trading.
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6.
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Trade lower position sizes
After a big loss, confidence can be low.
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Not having a clear mind can cause you to skip
trades, panic out of trades, or be overly-aggressive.
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None of these are good.
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Take a step back and trade in a demo account
for a few days.
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Because it's not real money, there is also
less pressure in a demo account, so it is
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easier to focus on trading, and not worry
about the financial aspect of it.
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A few winning days in the demo account will
raise your confidence levels and put you in
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a better mental space to take on the markets
again with real money.
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So after a losing streak, start small; don't
jump right back to the same position size
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you were trading before.
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In the first days back, trade small position
sizes.
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A winning day with a small position size will
help build confidence, and you can slightly
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increase your position size as the account
balance goes up.
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If you have a losing day, losing on small
position sizes is easier to handle than another
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losing day on full position sizes.
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Even if you win a few days in a row, increase
your position size incrementally, so it takes
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about a while to get back to your full position
size.
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I know that after you have traded bigger position
sizes, it's annoying to start back with a
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small position size, but it's for the best.
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Bouncing back from a losing streak is about
getting back to basics and implementing a
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strategy well, not actually about making money.
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Money comes from implementing a strategy well.
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Demo trading and trading small position sizes
gets you refocused on what's important, so
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you can start building your confidence again.
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7.
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Let Go of the Outcome and Embrace the Process
Realize that trading is a continuous process
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of learning.
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Most of the times, in trading (like in real
life!), you learn more from your mistakes
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than from your victories.
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Losing money should motivate you to look closer
at your actions, read more, better educate
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yourself, become more disciplined in your
execution and so on.
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Next time, you will have a better idea of
what happened and where you went wrong and
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can open up room for improvement and start
stacking the odds in your favor.
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As cliché as is sounds, putting your focus
out of making money and into enjoying the
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process will keep you on the right track and
more likely end up in profit.
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Until next time.
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