Controlling Your Emotions
Another common reason why many traders lose is their inability to control their emotions.
Emotions are the core pivot point of your success. Those in control make money. Those who’re not….don’t.
And here’s another example of that in action.
Imagine you have been trading your system for a few weeks and you’ve had 7 losing trades in a row. You’re feeling dejected. You’re thinking that maybe the system isn’t working or maybe you didn’t backtest it properly. You begin to wonder if other systems might work better. Maybe you’re doing something wrong.
Then an 8th signal appears. Only this time, convinced something is wrong, you choose not to take it. You effectively “bottle it”.
It’s extremely common, so if you relate to this, don’t let it get you down. I imagine 100% of traders out there can relate to this.
The difference is, 10% have learned how to overcome that feeling of fear. And it is fear we’re talking about here. The fear of opening yet another losing trade and adding to the loss.
It’s completely illogical of course because we don’t know that the 8th trade is going to be a winner or a loser. Just because we’ve had 7 losing trades in the past has no impact on the outcome of trade number 8.
Trade 8 is exactly the same as Trade 1. The only thing that has changed is your attitude towards the trade.
You can make Trade 1, full of hope and excitement. But by Trade 8 you’ve let the experience of 7 losers colour your perception of your ability to pick a winning trade.
Obviously what often happens is Trade 8 becomes a huge winner. And you hate yourself for losing your nerve and abandoning your system, which by now would be profitable had you stuck it out.
Winning traders know this. The 10% stick to their system through thick and thin.
The way I deal with this is to think of the bigger picture. Instead of focusing on the outcome of each trade, focus on your month or year.
And not prematurely either.
You have to give your system a chance to show you what it can do.
When I sometimes say to people, focus on your yearly result, not the individual trades, they sometimes make the mistake of assuming that means to keep a running tally of their year to date return %.
That’s fine, but it’s not what I mean.
If you check your YTD % return in Feb and it’s down -5% then you might allow yourself to become dejected and downbeat. Causing you to make bad decisions like system jumping or missing signals.
What I mean is, give the system a year. Regardless of what it looks like in Feb, April, July and October. Wait a full year, then reflect. How did it do? Was it profitable? Is there anything I should tweak.
If you cut your losses quickly and let winners run, you’ll rarely, perhaps never have a bad losing year. So what are you so scared of? You need to go on a huge losing run, or be overtrading to ever lose big.
Trade a mechanical systematic approach, stick to the rules and use suitable risk management and you can lose 8 out of every 10 trades and still finish up on a profit.
So stop focusing on “im on a 4 trade losing run and it sucks” and focus more on “I’m just going to trade my rules and see where we’re at in 12 months”.
And another thing.
Wouldn’t you love to have that data?
How useful would 12 months worth of solid data knowing you stuck to your rules be to you?
When you’ve proven to yourself that sticking to the system works, and that pulling the trigger on every signal works, trading becomes far more easier for you.
But if you never allow that to happen, you’ll never get the opportunity to gain that confidence.