Notes of a stock psychologist: Why losses occur and how to deal with them

An aggressive short-term speculator may get the “bird of loss” on a regular basis. Sometimes it is called a “black swan”. And paradoxically, sometimes the “bird of prey” is attracted by an extremely large one-step profit, which you took on some sharp price movement. Apparently, this is your champion manner: to withdraw profit quickly, quickly get out of an unsuccessful position and stay in the plus for weeks.

However, at some point after the usual profitable trade you open another one, but the market goes against you, and for some reason you do not get out of the position quickly, as usual, but slow down, watching the weekly profit evaporate.

This fact makes you sick, and you can no longer make a profitable trade, or enter at the wrong time, or miss a small profit. You are no longer cautious and calculating.

The explanation is simple: for some reason the trader has adjusted his perception of the market. For example, you traded fast growing fractals on 5-minute fractals and exited with profit at the first signs of reversal. However, the next fractal, having barely started to grow, immediately turned downward, and you were slow. Or, for example, you were on the wrong side of the market dynamics. A growth wave started, and you took the first correction as a reversal….

The smart move is to immediately close any position that is making a loss. But at this point, you may have some internal resistance that will argue that you are right and the market is wrong. You will look at the growing losses and make new excuses for yourself. At some point, even a wave of indifference will come over you: “I’ve lost so much already, there’s no point in fixing the trade right now.”

Missing the right action or not bringing it to the end, the trader sees his mistake and triggers autoaggression, that is, cruel self-criticism on the verge of dislike, directed inside the personality.

How to stop being fatally dependent on emotions and affects, to stop passionately “marrying” your trades and hotly “divorcing” them? I think, it is necessary to conclude a kind of a shameless “marriage contract”, in which we should take upon ourselves the obligation to be faithful to the trading system.

Your strategy in the long run must prove its ability to make money consistently and uniformly. And the critical condition here is that your system must give three or four out of seven profitable signals. Of course, you must also be able to “take the meat off the coals” in time. Or it will become coals itself. How many stories I have heard at my master-classes that a trader “over-sat” in a profitable position and had to fix losses. I call such situations the accidental success syndrome. An inexperienced speculator was lucky to guess the entry into a deal. However, his behavior was not systematic at all.

However, if without illusions, a disciplined systematic approach is also not a panacea against losses. Market transition from trend to range is the most probable cause of such account drawdowns. It is not clear when exactly to change the approach from trend to range, and when to return to trend following strategies. But in such moments, the emotional impact should not trip you up, trapping you in an arbitrary personality. Private trading is an occupation of this kind, where a person is left to himself, he has no bosses, supervising the observance of rules and discipline. To put it simply, the misfortune of a private trader is that there is no risk manager above him.

The trading history of any investor does not pass without losses. If you have just entered the market, treat losses as a payment for learning to trade and do not try with aggressive seriousness to get your money back quickly. Many beginners are unable to accept losses: they continue to trade on a whim, either begging for their money back (small haphazard trades) or trying to take it away by force (high-risk “wah-bang” game).

There is nothing more important than being psychologically prepared to trade. Which means that before you start your trading career, approach it like a professional, namely:

– build your own trading strategy or adapt one of the ready-made ones available, for example, at the disposal of our Training Center;

– Write it down and always keep it in front of you (not in your mind) when you trade. Also leave a memo in the most prominent place in case of mental disequilibrium: “Emotional, haphazard trading leads to steady losses.”

– follow your strategy with all the rigor you can muster. That means don’t get greedy when it’s time to exit a profitable trade, and don’t get your hopes up when losses are mounting.

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