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Elevate Your Trading With 5 Tips on Trading Losses.

“Trading losses are awful!” “Losses are terrible!” I can’t have a loss!” “When I have a trading loss, it just shows I’m not a good trader, husband, father, provider,… or person!”

How many of us have such thoughts about trading losses? Most, I would imagine, though we never talk about them. We may not even acknowledge them, but they are important. They cause us to cut winners short, hold onto losing trades, avoid pulling the trigger, and even over trade by entering a marginal position to make up for that last loss.

Impact of Thoughts on Losses

How we think about losses is important. Our thoughts about losses influence our trading behavior. They can affect how we see ourselves as traders and our self-esteem. Thinking about losses in such an unconstructive manner can create a negative trading spiral and actually compound our losses: We think losses are just dreadful. In trying to avoid them, we commit defensive trading behaviors (cutting winners short, letting losers run, etc.). These erratic trading actions may cause even greater losses, further reinforcing the notion that losses are bad. Self-esteem and trading confidence sinks, setting us up for more of the same on the next trade…

The reality is trading losses will happen continuously throughout your trading career. They are inevitable and unavoidable. With practice and more trading experience, losses happen less frequently, but you cannot eliminate them completely.

Reasons for Losses

Losses occur for two primary reasons: we make errors and the market.

We are human and trading is complex. Trading is very demanding on our mental and emotional capacities; it is very easy to make mistakes. Also, the market constantly changes. A trade setup that worked yesterday may not work today because the market is different. Trading is based on probabilities, meaning that there is always a certain percentage of loss in any trade setup.

5 Tips

Accept Losses. Instead of viewing them as awful, recognize that they are a natural part of the game. No one wins 100% of the time. Every professional trader had losses. Give yourself permission to have losses and agree to the probabilistic truth of trading.

Commit to Trading Well. Even when you might be thinking negative thoughts about a potential loss, be steadfastness in following your trading plan. Manage your trade by what you see in the price movement and indicators, not by what your mind is saying to you.

Use losses to learn more. Learn about yourself as a trader and about the market through your losses. Are you doing things that you can improve on when you have a loss? Did the market show you an indication that the trade would not work? Use this information with future trades.

Trade with an Edge. Make sure all your trade setups have a probability of working and an expectancy of producing profit. Write them down in your trading plan and work only your plan. This is the only way you will generate profit consistent with your edge.

Study market context. Any trade setup will work better in some market conditions than others. Know the context in which your setup works best. This will improve your edge and reduce the frequency of losing trades.

Reviewing all trades made is a good way to understand market context and learn from losses.One of the best ways to put these essential skills into practice and become a successful trader is through the trading journal. It helps you monitor every thing you do as a trader thereby helping you reduce trading losses

Happy Trading.

 

From – Dr. Gary Dayton

Article Source: http://EzineArticles.com/?expert=Gary_Dayton,_Psy._D.

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