If there is anything not discussed enough in trading, it would be losses.
Losses in this profession could be annoying because there is no mental indicator telling you that:
“Hey… your next trade is going to be a loss“
A few traders could manage the emotional baggage associated with one or two losses within a day or week in the market. But you see…, it takes an elite trader to manage the emotions associated with losing streaks.
The majority of traders struggle with the emotional roller coaster associated losing streaks. Quite a number of traders allow the frustration to further slip into depression.
My reason for this article is to share my own experiences about losing in trading and my thought processes through recovery.
This may help you, especially if you are a new or intermediate trader who is currently going through a losing streak.
As a trader, if there is anything I constantly battle with daily is:
Trying as much as possible to chain my emotions and put them in a place where they least interfere in my daily interaction with the market.
It took me years to understand what triggers my emotions and ways I could manage them.
Some of these feelings I will be sharing with you are:
1. The feeling of never recovering
One or two losses every now and then could be emotionally manageable, especially if you are not over-leveraging.
However, if we are sincere with ourselves, there comes a time in the market where it seems as if we are swimming with a rock tied to our waist.
Every single trade we pick goes bad. Our ace setups fail and even our second-best setups messes up.
If you are one of those traders who risks a good chunk of your account when trading, you could be down by over 70% in equity after going through a couple of losses
At this point, you begin to lose sight of your long term goals and your quest to recover the money lost overrides common sense. Your need to continue trading despite all the losses and no clear setups in view takes over.
Psychologically you are halfway defeated and the panick of you possibly never recovering those lost funds that may have taken you years to save sets in
Looking at the size of your losses makes you freeze, and your next placed trade may just be to fulfill all righteousness that you are working hard to recover your losses rather than trading out of conviction in your trading system
Solution:
You can recover from ALMOST any loss in trading, provided:
- You have not depleted your account to a level where you will be over-leveraging to recover the money lost and
- You have not managed to destroy the will-power and psyche needed for the recovery of the money lost to the market.
For this reason, I always discourage traders from over-leverage, because it takes almost twice the effort to recover your losses through trading.
2. The feeling that your trading system is broken:
A losing streak does not only make you doubt your trading abilities, but you also begin to question the efficacy of your trading system.
The sad part is:
If you belong to a trading community, you may begin to lose trust in your trading system faster than if you never belonged to any.
The major reason for this is because you will get to see other traders sharing their wins in a seemingly turbulent market and instead of you asking yourself:
“Did I you followed my trading system accordingly“?
You begin to lose focus on what use to make that trading system work previously
Solution:
Believe it or not…
There is no perfect trading system in the world. It took me years to understand this TRUTH.
Initially, I use to blame everything and anything for my losing streaks. My ancestors also took a huge share of the blame (no jokes)
The market is dynamic and not static, so a trading system that works for a couple of weeks or months may struggle in the future.
Two ways out of this terrible situation are:
- Since we now know that all trading systems have their flaws, it’s very important for every trader to understudy his/her trading system and find out what market environments disrupt or promotes the flow of their trading system
By so doing, it will be a whole lot easier to stay off the market or risk less during rough days/weeks/months
ii. It’s important for each trader to have at least two trading systems because the market moves in cycles. So when one trading system packs up or has no viable setups or signals, you can easily trade using a second trading system.
I rarely give this second advice to traders, and my reason is:
It’s very easy for new traders to muddle up two trading systems and have a conflicting bias in the market.
So my opinion is:
Don’t learn two or three trading systems at the same time. First become proficient in one trading system, before moving on to another.
3. Overwhelming emotions
There is a reason why there are a few stories surrounding traders who have exited this world through suicide.
Trading is a career that has a firm grip on our emotions and the reason is simple.
In trading, we deal with money, and the fact that you can lose all of your money (that took you month/years to save up) in mere seconds if you are a wreckless trader is scary
Depression may set in for some traders, and if such cases are left unattended to, the consequences may be dire.
Solution:
Trading is NOT for everyone.
This has nothing to do with trading being too difficult, but everything to do with a trader’s emotional intelligence.
Emotional intelligence was never thought in schools and was certainly not thought about in our homes when growing up
We passively learn emotional intelligence as we grow through life, and in most cases, it is hardly sufficient to assist us in our trading career.
Trading brings out a lot of emotional flaws we thought we never had, and managing these emotions while trying to make money in the market can be very brutal.
In my opinion…,
If there is one way you could assist yourself in becoming a better trader emotionally, it is by reading some books on the subject.
One of such books I will recommend is: “Trading in the zone” – Mark Douglas
4. Emotions related to us being accountable:
Like Jay Z once rapped:
“Men lie, women lie, numbers don’t lie”
Trading is a performance profession. Nobody is interested in…
How you trade
What you trade or
When you trade.
What investors are mostly interested in is: Your ROI (Return on Investment)
When push comes to shove and there is a need to promote or market yourself, not just as a trader, but also as a professional funds manager who knows what he/she is doing.
One tool that will always bail you out is having a verifiable trading account on any of the trusted platforms.
Now I know some traders will disagree with me on this because a few traders believe this aspect is only necessary when you are managing public funds, but hear me out
Other trading businesses where proof of your trading prowess may be demanded of is:
- If you decide to start mentoring traders
- If you decide to start a signal service group
- If you decide to start a support trading group or channel for traders
- If you decide to start a successful podcast or youtube channel for traders
Sharing your trading results with passive investors may not be as demanding as when you are actively involved in managing funds for clients, but all the same, it could be overwhelming trying to juggle between being sane enough to make money in the market and at the same time being accountable 24/7, 365 days of the year.
Solution:
In order not to put yourself under too much pressure while trying to fulfill the demands of being accountable, I always suggest that traders should think long term.
12 months in a year is enough time to work with and not less.
Give yourself daily/weekly/monthly targets that are realistic.
Some months may be rough, and you may not hit your set financial targets, but the fact that you have set a long-term goal, the burden to perform becomes a lot more bearable.
In conclusion
No matter how good you are as a trader, you will go through periods of drawdowns where you may begin to question yourself.
Most times the way out of such situations is re-programming your mindset and risking lesser than you would normally do just to re-gain your confidence.
It may take weeks/months and in some cases years to hit breakeven after taking huge losses in the market, hence it’s advisable to control your risk when trading the market.
Whatever time it takes to recover your position, don’t be in a hurry to get back on your feet for it is much more difficult to build an account back to what it was than to destroy.
ATTENTION:
For those who are interested in joining our FREE trading group on Telegram, where trade ideas are discussed, which may assist your trading career while being infected by positive vibes
Smash the link: https://t.me/joinchat/FN30PxlwXbk2BcuTDdH5yg
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