How Learning To Deal With a Loss Changed My Trading Career

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One of the greatest problems we face as traders is the one we rarely ever talk about: our emotional responses to loss. I think it is extremely normal and natural for us to not want to discuss loss.

The loss is something that we learn about at a young age and as we develop and grow into adults. So certain unconscious and subconscious reactions that began in development are just a part of us.

We don’t even realize that when we are in a situation where our mind even perceives a crisis that might involve the pain of loss, it reacts.

We react!

We’re unwitting slaves to it. And that is irony as traders: one of our greatest defense mechanisms is our greatest enemy.

Feelings…

If you have had therapy before, you know what I am talking about. Also, if you’ve ever had therapy before and learned about yourself, you are light years ahead of your peers as far as the health of your trading goes. In this sense, you are better equipped with how to deal with a loss.

I say that because when we bring up the discussion of ‘feelings’ people tend to mock it, ignore it or walk away from it. As traders though, that is so very, very dangerous.

It is important to know how yourself.

It’s important to know your insecurities, your fears, your feelings, your anxieties, your thoughts, and your perception of self. You need to know yourself. You can have the highest IQ but if your emotional IQ is average, you will always fail. You need to know yourself.

How to deal with a loss- is that what you thought, too?

It’s easy to say to yourself, “I know how I react when I have a losing position” or “I know I was upset when I should have just taken the loss and not moved my stop” or “I know I was frustrated when I took profit early and then watch price move more and I tried to chase it only to get stopped out again.”

Recognize, recognize, recognize

Recognizing your reactions is the easy part. The hard part is recognizing the part between the triggering event and your reaction.

And that is where your thoughts and feelings come into play.

If you think about it, trading is not normal.

It’s the antithesis of normal.

The Pain

Your brain certainly thinks that way. To become successful as a trader, you must put yourself into situations that will bring pain, suffering, and loss. And that is the normal part of your job as a trader.

You are actively competing against the most powerful forces in your body: the unconscious and subconscious.

You are quite literally fighting yourself and most of the time, the end result is a failed trader. You get beat by you. You even did not have the chance to learn how to deal with a loss!

So how do you stop this invisible force that seeks to protect you at the expense of financial disaster?

You can’t.

And it is so important to understand that!

You don’t want to stop that kind of reaction! Knowing you have no control over something is oftentimes a relief. This is similar to Step 1 of Alcoholics Anonymous, “We admit to having no control over our unconscious and subconscious reactions.”

When you admit that you are not in control of years of internal defense mechanisms, it stops becoming a Demon in you, and more like a really scary monster.

Still freaky, but at least it’s not a demon.

How to learn to deal with a loss- learn to be aware

So if we can’t defeat ourselves or those defense mechanisms, what do we do?

You learn to be aware.

Sometimes, just being aware of what we are thinking and feeling is enough to stop our reactions from hurting our trading.

Just be aware that this is difficult for people to do.

An uncomfortable moment

Again, I am not just saying that you give a voice to your thoughts and emotions by saying, “I feel scared. Ok, I know that now.”

That is not enough.

What you have to do is something a little uncomfortable, but once you do it and let it happen, you almost feel like you have a new superpower.

The skill you use is like trading: It’s not normal.

You approach it like trading: The opposite of normal.

You are going to have to let yourself feel those thoughts, feelings, and emotions. And you know what?

Not just let yourself feel them, let them wash over you, and let yourself realize the extent to which you have unknowingly developed such powerful and effective ways to cope, avoid, and handle the pain of loss.

This is not an easy thing to do, it’s not a comfortable thing to do and some of you are probably disregarding this learning tool.

Well, don’t.

How to deal with a loss- The Scenario

Let’s imagine that all traders are familiar with the following scenario and maybe it’s happening to you right now. You spent some time analyzing a chart, a lot of time. You’ve been diligent and looking at the monthly, weekly, daily, and now you’re looking at the hourly chart.

You already assessed where the historical points of resistance and support are. You’ve determined that the best course is too long, you’re just waiting for the setup. Some time goes by and finally, your trading setup arrives!

You take the long. And you watch it. You keep watching it…

As you’re watching, you are getting restless. Biting fingernails? Are knees shaking up and down? Drink a crap ton more coffee? Get up and pace thinking if you don’t look at it everything will be awesome when you sit back down.

You go back to your screen and the total opposite happens of what you determined had the best probability of happening. Now, that’s right when you need to stop what you are doing and let those feelings take over.

Let them take over, but don’t react.

Getting out of that trade before your stop or profit target is hit is just a way for you to get rid of the feelings you are having right now.

Don’t give them control, give those feelings an open space.

Because if you let it happen, a scary storm is about to begin…

Here are Some Mindfulness Tips:

• Take a couple of minutes to notice your breathing. Pay attention to the flow of the breath, the rise, and fall of your belly. Diaphragm
• Notice what you are doing as you are doing it and tune into your senses. When you are eating, notice the color, texture, and taste of the food.
• Don’t feel that you need to fill up all your time with doing. Take some time to simply be. When your mind wanders to thinking, gently bring it back to your breath.
• Recognize that thoughts are simply thoughts; you don’t need to believe them or react to them.
• Notice where you tend to zone out (e.g., driving, emailing or texting, web surfing, feeding the dog, doing dishes, brushing teeth, etc.). Practice bringing more awareness to that activity.
• Notice how your thoughts are probably judging you. Take notice of how much you probably beat yourself up with just thoughts.

Something you will notice as you learn to let yourself experience your own thoughts, feelings, and emotions is that you will be able to notice them earlier and earlier, to a point where you might be able to catch yourself knowing that you are going to react to something, being aware that you can’t stop it.

It’s a remarkable feeling when it happens—realizing you’re not fully in control of your thoughts. It’s both unsettling and fascinating at the same time.

Our money: Why is coping with a loss so challenging?

Now there are other ways we as traders can mitigate strong emotional reactions to loss or crisis.

Since it’s our money—and money is essential—it’s hard to trade without occasionally feeling stressed or overwhelmed.

But if you are constantly and consistently panicking about your account, you need to stop yourself from continuing that behavior.

Some things you can do right away are:

• reduce the size you put on the table
• use a higher time frame
• take a break.

Taking a break is essential. I feel like a lot of us who are traders treat trading like a video game.

Well, don’t!

What does dealing with a loss and World of Warcraft have in common?

Did anyone here play World of Warcraft when it first launched? I did—and I barely remember the first two years! Trading can be a lot like that; many people could do it all day and night without noticing the time fly by.

If you don’t have a regular sleep schedule, change that!

You should be exercising, too. Not kidding. It’s amazing how much better I know I feel after a good workout. It’s essential for your physical just as it is for your emotional health.

And get a standing desk! I use one and I love it. For even more details on my daily routine and how I fight overtrading, check this ARTICLE.

Diet, Sports, and Dealing With a Loss

Along with exercise, proper nutrition is key. It never ceases to amaze me how much junk we consume—not just as traders, but as people in general.

Trading is such a brain-intense activity that sugar alone is not going to help, caffeine is not going to help. What you need is a healthy diet that keeps your gut happy and your brain healthy.

For those of you who have transitioned from a bad diet to a healthy diet, you know what I mean when I say you do feel soooo much better.

Getting more personal…

On a personal note, I used to spend most of my time sitting around gaming. Back then, I was skinny-fat—thin arms and legs, but with a huge gut. I’ve always loved eating, and I still do. But running? I’ve always hated it, and that hasn’t changed.

My brother got me into long-distance running, and you know what? It turns out running can actually be fun—and the best part is, you can eat whatever you want! Seriously, I’ve never eaten as much in my life as I have since I started running about five years ago.

I don’t know of many other activities where you can eat steak, and cake, drink whole carton of milk, and lose weight at the same time.

Running and trading

Interestingly, running parallels trading in many ways. Just like in trading, you experience failures constantly—it’s part of the journey. In both, persistence through setbacks is what ultimately leads to success.

We fail, we learn, we get better.

Each failure makes us better (well unless you don’t learn from it!). Running is the same way.

Failure isn’t just inevitable—it’s the goal. You fail often, and sometimes you even push yourself to failure on purpose. It’s through these setbacks that real progress happens.

You hit a certain speed you can’t reach, you start lower and work your way back until you can beat it.

It might take a while, but eventually, you can beat it.

Trading is the same way in many aspects.

How to deal with a loss- Talk to someone

Another essential aspect is that you must talk to someone. This journey is far too challenging to tackle alone

Find a pastor, your spouse, a therapist a close friend, or another trader. But find someone who will listen to your market frustrations.

They don’t even have to know what you are talking about! But you would be amazed at what you can solve when you verbally sound it out. And you will feel much better.

Journaling- another amazing activity that helped me deal with a loss

Journaling is something I know I struggle with doing diligently. However, journaling was one of the things that changed my performance.

It changed my performance because I was able to actually see how often I did things that messed up my otherwise successful plan.

My journaling taught me how unsure of my analysis I was! And that even if I spent considerable hours before the trading week to plan and I knew what I was going to do, within minutes of something looking like it was going against me I would bail out.

Journaling helped me realize just how often I was getting in my own way—how frequently I messed things up without even noticing.

Summing It Up

1. Accept that you can not change a lifetime of unconscious defenses toward situations of pain and loss.
2. Allow yourself to experience your thoughts, feelings, mood, and emotions. Don’t try to change them, just experience them.
3. Reduce your trading commitment, avoid putting a full position on, and ease back into it.
4. Take a break! Take a vacation! Trading is a career, it’s not your life!
5. Find someone to talk to about your trading day, your successes, and your failures.
6. Exercise! Exercise! Exercise!
7. Journal, journal, journal.

In closing, I sincerely wish you all the best. Trading is an incredibly challenging and often isolating career, and that solitude can make it even tougher to manage. So, remember to take care of yourself first—it’s the most important thing you can do.

Happy Trading,

Colibri Trader

P.S.

Check out some of my other popular articles:

Learn How to Use Candlestick Charts (Free E-Book included)

Learn Proper Money Management Skills (Free Risk Calculator included)

and of course, e-mail me at: admin@colibritrader.com if you want to learn more about how I deal with a loss or if anything has changed in the years.