Dealing With Losses

Michael Storm — Follow Michael on Twitter

Losses, what an ugly word. Traders don’t like them. Surely they are not fun. But alas, we all get them. How exactly should we deal with them? It has been said that losses can be a gift… a real learning experience.  IF… we are willing to learn and be taught.  Rather than to simply “delete” them entirely from your memory, look at it this way:  The loss is in, we have paid its price, its tuition if you will, and now how can we learn from it?

So many traders have a trading journal, where they write down there wins and losses and tally them up at the end of the day and week.  This is a good idea. But how about this, have you ever considered having a LOSS journal?  No?  Perhaps it is because of the fact that we really just want to “forget about it” and go on.  A loss journal, even if kept for just a month or two, would be a GREAT teacher to you.  You have already paid the price so why not LEARN from them by doing this simple exercise for a month or two?  Every time you experience a loss, take a screen shot and PRINT it out on your printer. Mark the entry, and the exit.  Write down a note or two and put down what you were thinking when you entered and exited.  At the end of the day, if possible take a small amount of time to print the end of day chart on that currency pair and place it with the snapshot of the losing trade.  Collect this for a month or two and on some peaceful Saturday afternoon, when you are rested and clear spend and hour or two reviewing your losses.  Somewhere in there you should see a common denominator.  This is the learning experience and NOW you can learn from this and work relentlessly towards eradicating this from happening again.  It takes time, but what you will learn will be very valuable indeed. Make your losses work for you.

Many traders may feel compelled to “blame shift”.  “crummy market makers ! THEY knew where my stop was and took it there to get me, and then it ripped in my direction!” There are MANY other things I could say, but I am sure you can search your own memory and are aware of some of the things you might have said or thought.  This thing…. shifting the blame from US to someone ELSE may make us feel better, but it is a false bandage and will hinder us all in the long run.  The market really doesn’t care what you do.  It will MOVE regardless.

Another trader may experience a bunch of losses in a row, perhaps a bad day or even a bad week.  Losses and the emotional pains they give us can cause frustrations and fears. Perhaps even doubts about ones abilities or perhaps confusion and a fear to even “pull the trigger” on another trade, because we fear: “oh no, not another loss.”  If you are ON a losing streak, do you have a plan in place to deal with it?  Like: “Four losses in a row and that’s it. I am cut off for the day”…. or…. “$400 down and I am cut off for the day”.  I do not know what your plan is, but you do have one, right?  If not you should think about this.  What is the acceptable level and when do you cut yourself off?  More importantly, how do you deal with this emotionally?  Do, you :beat yourself up” with bad inner words spoken, like: “what an idiot” or “I must be a fool” or “dummy how could you make that mistake again!”.  These are very negative and bad words.  They should not be spoken.  There is a lot of power in the spoken word. We should not berate ourselves for mistakes. It is nothing but destructive and cannot help. Don’t indulge in mental agony.  Compliment yourself for doing a good job instead!  Say things like.  “Congratulations trader. You adhered to your stop!”  Good job.

Some traders may be embarrassed or ashamed because they have to go home and tell the wife or friends that they lost “again” and face frowns, or ridicule or whatever else.  If this is the case, only confide in those you trust, or those that believe in you. If not, then follow this adage… if you don’t have anything nice to say, say nothing at all.  This will go for the wins to, understand? Even the BIG ones. DON”T brag about it. Because you could set up a scenario where you feel compelled to perform every day or week and God forbid you should should have a bad day or two, then you will REALLY hear it.  I hope you understand.  Wins, losses, it is all part of the business. Consistency is the real thing.

So, my major point in a nutshell is: Don’t get all bent out of shape about it. Don’t smash keyboards or kick the dog. Don’t take it out on someone else. Just take it for what it is. A Gift to learn from. USE it.  Don’t beat yourself up. Don’t share it with negative people, etc…  In the great scheme of things its just a series of trades, within a LIFETIME of trades.  A baby learns to walk through PAIN and TRIAL and ERROR.  They stumble and FALL, they pick themselves up an try again and again. Over and over and after MANY failures, they are walking.  That’s how it works. Losses teach us to do something about them. If we did not have them we would not grow.

Now, if you are having a bad day… stop. Its that simple, no need to “revenge trade” and try and make it all back, or even worse, start increasing your size and doing crazy things, trying to make it all back. Just stop.  Give yourself a rest and shake it off. Don’t come back to trading until you can do so without fear or guilt.  We need to be clear. We need to be “in the zone”.  Because that is when the trading is good. NOT when we are in a bad state of mind.  If your wife left you, your house burned down, or your dog died, your car blew up or some other terrible fate befell you. YOU SHOULD NOT BE TRADING at that time, unless you are purely and truly able to detach yourself from it. Most are not able. Wait, until you are in the right frame of mind to trade.

Losses are never fun, but they are a permanent part of the traders life. It is a daily or weekly occurrence.  We get to choose HOW MUCH WE LOSE. Don’t we? Lets keep them as small as possible. Many new traders blow there accounts a time or two trying to get hold of this thing called trading.  The pro trader has dealt with losses for years and knows how to handle them. To think you will ever STOP losing permanently and for ever is just not rational. Lets deal with losses in a professional manner. Keep them SMALL, and of course as infrequent as possible too.  This occurs over time. An inexperienced and unprofessional trader will let their losses bother them to no end, and let their losses get wild and out of control.  A pro trader will, have lots of small, manageable and controllable losses and they will be relatively unaffected by them.  This requires a lot of self control.  So, which do YOU want to be? A novice who gets angry, hurt, fearful and full of uncertainty?  Or, would you like to be a pro, who KNOWS he will lose a certain percentage of his trades and takes it in stride?  The true measure of a pro is one who can take the loss,  and who chooses to make it small. When in doubt, get out!, its better to lose a few pips or even 10 than to lose 50.  How well do you lose? How well, do you handle it? Lets have a professional mindset this new year !  Till next time, happy trading and thanks for reading.

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