My recent rare spell of one point losses got me thinking and prompted me to write a short post about losing, our attitudes to it and how we can stop it eating into our confidence.
If you are new to trading, it’s easy to panic after a loss or two. Some will chase losses and blow their trading banks. Or if they just can’t stomach losing, give up all together. After all, that’s what real losers do isn’t it?
So how do you deal with losing trades or heaven forbid, losing runs?
The truth, is that losses are a part of trading. Even the greatest traders have losing trades. Anyone who thinks that they can trade and not have any losses is living in cloud cuckoo land. They happen, get over it!
Trading is very much a mental exercise. If you have ever tried meditating you will think it was easy. But truth be told, it is a lot harder than it looks. Trading is actually not so different. When meditating its about calming the mind, shutting out all those negative thoughts and then gently focusing on the breath, seeking stillness within.
Trading is just the same. It’s a very emotive exercise as our hard earned cash is involved. Yeah, watching the goals going in boom, boom, boom is dead easy, but what about when they dry up and you start to lose money?
How do you respond?
When your emotions start to get the better of you, you become a different trader all together. You question yourself and consider ‘tweaking things’. Yet, the truth is that there most likely isn’t a problem at all. It’s just your emotions playing with your mind.
Last month I had 12 full point losses and made a nice profit, August I had 10, July I had 12 and at the end of each month I STILL made a decent profit! In fact, I have never had a losing month!
Losses are like buses, you wait ages for one and then they all turn up together.
Something that many people don’t realise is that as human beings we feel losses more than gains. In fact, we feel a loss twice as much as we feel a gain. This is commonly referred to as Loss Aversion. We will often pass up fantastic opportunities for the fear of losing out in some way. Asking a girl on a date is hard for many, as the fear of being rejected far outweighs the high of someone saying yes.
Losing trades are sent to test us and our resolve. They play with our minds and lead us to start doubting our ability to select winning trades. The fact is that you’ve probably had many previous winning trades and have just hit a losing spell. The wins will soon follow, you’ll see.
As long as you keep resolutely to your system and be consistent with exiting your trades, everything will return to normal real soon.
The worst thing you can do is stop and give up. If you are that concerned then try reducing your stakes until the bad run is over and then increase your stakes once the storm has passed.
Some things to remember when you hit a run of losses
- Don’t look at any trade or even sequence of trades in isolation. – Trading is not measured over a period of one trade, one day, one week or even one month. Think of a long series of trades as being one trade. So if you win 70 out of 100 it’s most likely that you will end up with a good profit.
- Don’t chase losses – This one is a no-brainer. If you chase losses you will lose focus and lose your money in the process. You will then need to increase your strike rate significantly in order to recoup those losses. Don’t do it! There are always more games and opportunities just around the corner. Be disciplined!
- Analyse your losing trades – Was it really a bad trade/selection or were you just unlucky! The teams had an off day, red card or the woodwork was struck a dozen times. It happens!
- Keep track of your trades – If you don’t keep track of your trades you won’t have any data to analyse to see where you are going right or wrong.
- Take a break – If your bad run continues consider taking a break for a week or so to steady the ship. Take a step back and work out where you’ve been going wrong.
If you are new to trading I assure you that with some experience, you’ll be able to handle losing trades just as you handle winning trades. Your mental resolve with strengthen and in time you will establish the mind of a trader and NOT a mug punter! Happy Trading!