Hi everybody, I have a problem that I'm pretty sure is common for a lot of traders - namely, difficulty taking a loss. When I take a trade that loses, I have a tendency to lose focus very quickly. My mindset changes from making money to making up the loss; I become stubborn about whatever direction I am trading; and worst of all, I get tunnel vision and begin missing obvious cues, the classic one being slow / choppy price action that I really shouldn't trade at all, yet there I be, trying to make up that loss... (ya, right).
I have a 2:1 risk/reward ratio, so if I lose 2 trades in a row, then all I can think is "even if I make a perfect 3rd trade, I'm still at scratch". Losing 3 trades and I am in danger of revenge trading. Bad stuff. It takes a lot to "let go" after numerous losing trades.
I absolutely, positively must come up with a strategy to keep myself in the right mindset, not lose focus, and/or know when to fold 'em. Otherwise my steady gains can be eaten up by 1 or 2 days of losses. The way I see it, the keys are:
1) Quickly regaining mental balance (or best of all, not losing it in the first place!)
2) Remaining disciplined to ensure I only trade when my edge is present
3) Removing as much stress as possible from trading - eg. changing my mindset about trading
4) Being able to take a loss gracefully, and if necessary, quit the day with a loss with no emotional baggage
Your thoughts / comments / advice are as always, appreciated. Thanks!
The following 5 users say Thank You to w00dmann for this post:
Take a break of 10min after each trade, win or loss. Except when you're setup is still valid, and you're stopped out just because of market noise.
You''ll have other thoughts after the break. (maybe start with 15 or 20 min)
Have a maximum day loss limit (eg 3% of risk capital). ( And accept that loss mentally ! )
Trade a strategy in which you've confidence.
The following 5 users say Thank You to trendandfade for this post:
Don't focus on making money. Money can induce emotions. You should work on focusing on the execution of your trades. Trade for skill. If you can focus on trading better and focus less on the money you can overcome that.
I have had a problem lately of focusing on the open P&L during a trade and have allowed it to cause me to close perfectly good trades early trying to 'secure' profit and end up missing larger moves.
Key is to get your mind off the money and focus on just executing you trades. We are not robots and you will struggle, but key is to recognize that you are focusing your attention in the wrong area. Also remember you have limited amount of attention and if you waste it on losses or money you may not leave enough to properly read the chart or trade your plan.
So you real problem might not be losing focus, but expending it on losses and not leaving yourself enough to trade properly or determine that the day is done and to leave.
The following 8 users say Thank You to tturner86 for this post:
Thanks guys, I appreciate your responses. One thing that has hit home for me over the past few days is the notion that my trading is a long-term endeavour. As such, when I am trading 10 years from now, will I remember any of the losing days I have had recently? Of course not. Will the losses I've incurred lately (either real monetary or virtual "sim" losses) factor into my long term equity curve? Of course not. It really helps to keep that perspective front-of-mind as I trade. Whatever I do today, tomorrow or next month is puny in the long term.
The following 2 users say Thank You to w00dmann for this post:
Taking losses, mentally, is a tough thing starting out. I remember my coach telling me, "Yeah, I didn't think that trade was going to work out". Then I got really mad, thinking, "well, if you didn't think it would work, why did you insist we take it?".
At the time, I had this thing where every trade had to work out. Well, if I didn't think it would work, I wouldn't have taken it, right?
Learning how to lose gracefully was difficult, but I learned over time that I won't even remember the trade in a month and to take a walk if I get to high/low emotionally.
The following 3 users say Thank You to Krav69 for this post:
This, but for me, it was very hard to do in the beginning because I wanted to "see"
what would happen if I traded this way instead of that way. That hurt me but it also
helped me fine tune my method. You don't want to try new entry/exit
strategies on the fly. A lot of traders do this out of compulsion and wanting to WIN. So they throw money around and they lose lose lose. Keep it very specific. In my opinion, as a discretionary trader, you shouldn't be getting multiple
entry signals a day unless they are on related instruments. e.g. I had a long entry in the Euro and also
several other currencies at the same time. There was some correlation happening there and a potential
turning point for those currencies that happen to be aligned on that specific time frame (4hr).
Practice self-control and patience.
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Strategy ≥ Money
The following 7 users say Thank You to Massive l for this post: