The problem with a loss is often not the loss itself. It is the vicious cycle that unconsciously gets set in motion on the back of it.
Before the loss you just do your thing, you follow your rules, you work on generating profits, being in flow with the market and the world. Then bang! The market moves unexpectedly and you suddenly find yourself in a loss. Rude awakening..
Taking the loss is not a big deal, you know you can recover easily. The first loss you take with grace and ease, you do what you know a successful trader does. With the second loss loss you maybe start feeling a bit off balance, discomfort, self-talk might start whispering in the back of your head now.
What then can become a big deal is when you start feeling so off your game, that suddenly you find it hard to find your rhythm, no matter what you do you seem to always be on the wrong side of the trade. Price moves up, you go long, price drops – loss. You go short to get back in flow with the market, price starts moving up – another loss.
Why is that so?
Well, I could throw some fancy behavioural biases at you, but let’s keep it simple..
If you were to document the anatomy of your post loss behaviour, you will realise that your focus on following your system to generate profits has now unconsciously been overridden by the overwhelming urge of wanting to recover your loss. For example, if you were short and had to take a loss, even if the market is rallying to the upside, you are still feeling drawn to look for shorts, unless you have trained yourself not to buy into your urges and temptations but reverse your position and go with the flow of the price movement and feel how good that feels – to be back in flow with the market..
This change in intention creates a very different set of subconscious trading behaviour.
When you are in flow with the market you are at the cause of your trading, you simply read price action, you enter and exit when your system tells you to no matter what the price is, short long, whatever the market shows you.
When you are subconsciously being ‘puppeteered’ by that urge to recover your loss you are at the effect of the previous experience and you will start behaving in a reactive way whereas before the loss you were ‘running your show’. Now you find yourself being tempted to enter at the same or better price than the trade that you lost on, even if there is no entry according to your system. It has now become all about eliminating that previous loss by recreating the losing trade to make the loss back.
Fear of missing out overwhelms you and you are more focused on what price you could get in than reading to what the market is telling you. You start entering and exiting your trades impulsively succumbing to your urges which gives you temporary relief from the discomfort. That’s why you feel out of rhythm and unable to read the market.
You find yourself holding trades longer than you usually would because you want to make the amount back that you lost preferably in one trade. When you are in flow you just exit when your system tells you to. Now you might start ignoring the exit because that little voice in the back of your head is telling you that if you just hold the trade for 2 more points you would have recovered the loss and maybe made back even more.
The thing is, sometimes you get lucky and it works, but when it doesn’t it can hurt even more.
What to do?
First become aware of what is going on for you after the loss. Do you have a similar experience as described above? If not what is your experience? What are you thinking, what are you saying to yourself, how do you feel?
The thing is we all have an unconscious strategy on how we respond to certain situations in our lives. That is why we keep experiencing the same challenges over and over again until we dissect our strategy, understand how we create certain outcomes and then consciously go about creating a better strategy that creates better results and practicing this strategy over and over again.
After you have dissected each step of your trading behaviour, now take note of whatever the balance is of your trading account. That is your new starting point! Never mind what you had before, how much you lost, how much you won, just start fresh from this number.
But before you get back into trading, there is one more step you need to take. You need to push the re-set button on your state of mind, re-calibrate your brain and also your emotional state, so that you don’t carry the past into your future, but complete the past and start again with a blank slate and create a better outcome.
Play your favourite computer game, go for a walk, getting something to eat, or even better catch up with a friend or go to the gym or watch a movie. You will find that in the scheme of things that loss wasn’t that bad (unless you lost your life savings, but that is a different story).
Then get back to work, focusing on your system, one trade at the time, creating the life of your dreams..
With a toast to your trading profits