Trader Psychology: Dealing With A String Of Losses

One of the hardest part of being a trader is going through a string of losses and losing trades, and being able to deal with it and overcome it.

From my own experience, I can say having a protracted period of losses and going into some form of drawdown, or losing the hard earned gains you earned, weighs heavy on me mentally and emotionally.

I would like to share with you how I dealt with this common problem that afflicts so many traders, and to a large degree how I still deal with it and remedy the situation today.

For me, I think it’s best to break it down into specific parts. Like a car that has some type of malfunction; we have to take it apart and rebuild it, or tighten up the loose parts.

STEP 1 – ACKNOWLEDGING THERE IS A PROBLEM

One of the things many novice to intermediate traders like to do, is to pretend the problem is not with them but with the market. “It’s just the market acting weird”, or even “I just had a bad day”. When you find yourself in a situation where you can’t make money in a market, you’re losing money every day and what you’re doing is just plain is not working, then it’s time to acknowledge there is a problem. Step back, take a break, and assess the problem.

It takes a special type of trader to dig deep and rectify the situation and ultimately come through it.

STEP 2 – ADMITTING YOU DON’T UNDERSTAND THE MARKET

There is absolutely no shame in saying these words to yourself. It’s a step forward, and a damn sight better than pretending what you did before was working, despite losing money day after day. Have the confidence in yourself and as a trader to say these word to yourself.

STEP 3 – CHOOSING NOT TO TRADE THIS MARKET

“I choose not to trade this market”. Saying this to yourself is when you start to gain sanity and control again. You are in control of yourself and your trading, not the market, so why get involved in a market you can’t beat and don’t understand. The absolute best thing you can is to stop, regain your discipline, focus and self control once again.

And the next best thing you can do is document your torturous journey in a journal. No matter what level of experience you are, writing your mistakes down will help you tremendously while it’s also a wonderful reference point to come back to when the situation arises again, as it surely will throughout your career in some point. We certainly learn more by focusing on our weak points, than praising what we do well.

STEP 4 – WAITING FOR A MARKET YOU DO UNDERSTAND

One thing I have noticed in trading is that a few days a month I really feel like I understand what’s happening and I am wired in, almost as if I’m in sync with the market. If in any particular trading session I feel like this, the odds of trading that day feel skewed in my favor dramatically, and these certainly are days we should all be looking to trade and extract gains from.

Look for these types of trading days when with confirmation from the price action, it feels right and it seems to play well with your own confirmed analysis.

STEP 5 – TAKE SMALL AND CONSISTENT TRADES

Rebuild your confidence in markets again by taking small and consistent trades in the markets that you feel you do understand. Try to be patient enough to wait for the days you feel the odds are in your favor, it will rebuild your confidence and discipline and restore your faith in trading.

In summary, we all have trying weeks or months through the year in our own trading journey, this is particularly the case in the first 2-5 years for a lot of traders.

So feel free to elect not to trade the days you feel the markets are particularly tough, and even take some affirmative action; like trading only 2-3 days a week if that helps you with the goal of being consistent and maintaining your control over the market and your own system. It really can make a difference when you look back over the year at the P/L in your own trading account.