Psychology of Trading
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A series of trading losses - How to deal with it?

A series of trading losses - How to deal with it?

created Paweł AdamczykApril 18 2019

Loss in trading is undoubtedly the worst thing for many traders. We do not train for it, we gain experience, we educate ourselves to "give back" our hard-earned money to the market. It is worth noting, however, that losses are an inseparable part of trading and a good trader can draw the right conclusions from every lossy item, which  consequently, it makes it an even better investor.

No matter how many experiences we have, are we daytraders or long-term investorswe all experience from time to time and we will experience a series of losses. It only depends on us whether this series will "break" us mentally and lead to resetting the account or whether it will only be a "cost" of future profits for us. In this article, we'll present some suggestions on how to deal with losses in everyday commerce.

Be sure to read: How not to let internalize losses?

Losses are something normal

This statement may seem obvious, but very many traders, especially beginners, completely forget about it. Entering the market with a bad attitude, we immediately condemn ourselves to failure. Many opinions say that the key to success in the market is the psyche. Regardless if we agree with this statement or not, we should not allow the situation that losses destroy our trading plan and the concepts of our trade.

JIf you want to regularly earn money on the market, treat loss as a temporary failure on the way to success.

Understand what your losses are due to

Generally, losses can be divided into two groups. The first of these are losses that fit in with our strategy and our investment style - we can name them normal. The second group is the loss resulting from emotions, undiscipline and our mistakes. As the first we have to ask the question, whether the losses that we suffered are in the first or second group?

Normal losses are nothing more than a worse period for our trading strategy. In fact, the only thing we should do is forget about them because no matter what approach to trading we use, we will never achieve 100% efficiency. If we stick to the plan and invest consistently, it is a matter of time before the losses turn into profits. If the losses result from emotions, undiscipline and errors, we find the reason and remove it. In fact the key to avoiding the second group of losses is having a plan and consistent implementation. If we have a plan, we know where to open the position, we know where to close it, we know how to lead the position, we really limit our emotions to a minimum and avoid overtrading. In practice, these factors will quickly reset your account.

Each strategy has better and worse periods

Understanding this fact is the key to systematic earning. It should be remembered that success in trading is long-term. If we have proven schemes and the awareness that in the long run they pass the exam allowing you to earn, we will look completely different in the series of losses. Investing is a cyclical activity, therefore, each month will never be the same for us, there will be better and worse periods, which is completely normal.

Remember that by maintaining the right ratio of profit to risk, even a series of a dozen or so lossy items in the long run will not affect your result. The longer the period and the greater the number of trials, the more the statistics work in your favor.

Negative emotions are your enemy

No mistakes are made only by those who do not invest. At the beginning, controlling your emotions can be difficult, but believe me, the more experience you gain, the easier it will be. How to avoid negative emotions? First of all, one should not overstay the items that are too loose, just draw conclusions from them. We have no influence on the past, if you closed the transaction with a loss, you will not reverse the time, you will not change the result. It is also good to keep a healthy approach to trading.

Trading must be treated as passion and the transaction should preferably be with a clean head.

Keep balance

This rule should apply not only to the series of losses. "Life" investing all the time, will actually bring more harm than good. The key is to maintain the right balance. If you have a series of losses, you feel resigned, angry, disappointed, rest from the market. Remember, every day is a new opportunity, no matter how many times you "fall down", how many times you can get up. With a series of profits, also take a break from time to time, it will allow you to recharge your batteries and look at the market with a fresh eye.

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About the Author
Paweł Adamczyk
A graduate of the University of Economics in Katowice. Since her student days, passionate about the currency market, stock exchange, and broadly understood investments. An active trader on the Forex market since the 2013 year. In making everyday investment decisions, in the first place puts the key aspect of the market, the price. A fan of motorization, travel and extreme sports.