How to manage & deal with consecutive losses in trading ?

19 Jul 2021

Trading Psychology: How to manage & deal with losses/consecutive losses in trading ?

Hi everyone:

Today I want to go over a very key trading psychology lesson on how to deal with losses, especially consecutive losses.

This is bound to happen to any traders, whether you are new or experienced. ITs something all professional traders will have to deal with on a regular basis.

Understand that, dealing with losses psychologically is the key factor in the success of a trader.
This is because losses are inevitable, and trading is a probability, which trades that you take will end up both in wins and losses.
However, traders usually can not accept losses, due to their ego, greed and other emotional factors.

Aside from having a good risk management, trading plan, and trading strategies, traders can still experience the psychological emotions of losing.
This is due to the fact that we are humans and we are an “emotional” animal. We don't want to be wrong, at all.
Taking a loss is like getting slapped in the face by the market, which we have egos to fight against.
What ends up after taking losses or consecutive losses, it puts traders at a disadvantage where their emotion is high, and likely to “revenage” trade to chase back losses, which end up in a deeper hole.

To deal with such psychological phenomena, take a step back and observe your situation:

First, did you follow your trading plan/strategy on how to enter, set SL/TP, and management ?

Second, did you take an emotional trade due to greed or fear of missing out ?

Third, have you journal down your losses and review them to make sure they are trades you really want to risk your capitals on ?

By now you will see why we need to review these. Trading is a probability, not right or wrong. It's a random variable that you are putting your $ at risk.
So if you understand the rules and plans that you follow and execute a trade accordingly,
then there should NOT be any negative emotions towards the outcome of the trades, whether they are winners or losers.
When I discuss the trades I entered every week in my trade recaps videos, I am always happy to enter a position, even if it goes to a loss.
This is because I have done enough backtesting, chart work, and plan to enter a position.
I understand strictly from a probability point of view, I could have a higher strike rate, and more often the trades will end up as a winner rather than a loser.
However, I also understand and acknowledge that some trades will end up in a loss, disregard mine technical analysis or other’s fundamental analysis. It is what trading is all about.

When I have consecutive losses, I will always review the 3 points I mentioned above and make sure they are all valid for me.
Then I simply will take 1 day off from the market, chart, phone, and just get your mind clear. Come back strong after 1-2 days of rest, and have a positive mindset.

What traders often do when they have consecutive losses is to right away re-enter back into the market and try to chase back their losses.
This has always been the downfall of losing and it creates anxiety in traders’ minds.
Such a negative experience is going to stay in the traders’ mind longer and deeper, compared to consecutive winners.
So wise we understand that is the case how our brain is "programmed” into thinking, then it's up to us to do the opposite, and fight the urge to “revenge” our losses.

At the end of the day, no one is trading your trading account, except yourself.
Taking ownership of your account, learning to control our emotions, understanding the probability side of trading, and learning to let go, drop our ego will help us in the long run in this industry.

I hope these pointers can help some traders who are still struggling with this concept.
It's impossible not to take losses, but professional traders deal with it on a regular basis and still remain consistent in the long run.

Thank you

I will forward some Trading Psychology educational videos below on some of the topics explained today.

Trading Psychology: Revenge Trading

Trading Psychology: Fear Of Missing Out

Trading Psychology: Over Leveraged Trading

Trading Psychology: Is there Stop Loss Hunting in Trading ? How to deal with it ?