By embracing a loss, really feeling it, I tend to have less fear about a potential loss the next time around. If I can’t get over the emotions of taking a loss in twenty-four hours, then I’m trading too large or doing something else wrong. Also, the process of rehearsing potential losses and confronting actual losses helps me adapt to increasing levels of risk over time.My approach is to confront losses even before they materialize. I rehearse the process of losing. Whenever I take a position, I like to imagine what it would be like under the worst-case scenario. In doing so, I minimize the confusion if that situation actually develops. In my view, losses are a very important part of trading. When a loss happens, I believe in embracing it
Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore.”
A few quick caveats:
- There is no place for denial in successful trading.
- Don’t blame your losses on bad luck or outside manipulators. Accept the responsibility yourself.
- Don’t be dependent upon trading for all your fulfillment and happiness.
- Focus on opportunities, not on regrets.
- Proper risk control and discipline is non-negotiable for every trade everyday.
- Revenge trading – trying to make back a loss – carries with it far too much emotion and is always costly.
- Poor money management skills are the number one reason that novice traders wash out.
- Learn to recognize your impulsive state of mind and take action to stop it.
Even the best traders in the world book small losses on a regular basis. If you manage your emotions with consistency and if you strive for a disciplined trading mindset, then you should have no problem surviving a string of bad trades and showing profits at the end of the year.