A losing trader is in denial. His equity is shrinking, but he continues to jump into trades without analyzing what is going wrong. He keeps switching between markets the way an alcoholic switches between whiskey and cheap wine. An amateur whose mind isn’t strong enough to accept a small loss will eventually take the mother of all losses. A gaping hole in a trading account hurts self-esteem. A single huge loss or a series of bad losses smash a trader against his rock bottom. Most beginners collapse and wash out. The lifetime of an average speculator is measured in months, not years. Whipsaws are the main reason for the trader to bust his account. Whipsaws are part and parcel of market but we should know How to deal with it.
How our Mind Play when we whipsaw
Let me explain Raj’s experience to see how many times his thoughts and feeling changed during a trading day.
Raj began his trade feeling calm and relatively confident on the trade he has just taken but suddenly trade turned and it came near the SL did not hit SL but he exited. His mind began thinking about a loss and his body became tense. After closing the trade, he said to himself, “Nice job!”
The congratulations didn’t last long, however; He soon felt down and his thoughts became toxically self-critical thinking about loss and loss of trading capital. We see Raj ’s mind automatically generated widely varying thoughts and emotions within a brief period of time. Because he was fused to his thoughts, Raj was whipsawed back and forth by her own mind.
The mind can be remarkably shameless in the stories it will tell. When we are fused, we can’t tell the difference between what is truly useful and what is not.
Raj ’s mind insisted he exit the trade. It told him how he could not tolerate another loss. Fused with his mind he covered her short trade. Then, a few moments later, the market fell.
Did Raj ’s mind say to him, “, Raj , I made a mistake; I am really sorry for persuading you to exit that trade?”
No. Instead, it shamelessly told him how bad he was, that he couldn’t follow her trading plan, and that he will never become a profitable trader. Because he was fused, Raj believed what her mind told him
- First to exit a sound trade because he believed his mind when it told him she would have a loss and then to feel down because he believed her mind when it told her that he is incompetent for exiting the trade it told her to exit only moments before. Obviously, neither mind was right, but when we are fused we are unable to tell.
We can be highly vulnerable to mental and emotional whipsawing when fused. Virtually all traders have had this experience. Trader need to develop Emotional Awareness which will help protect you from this kind of mental abuse, and help you to begin to produce the kind of trading performance you desire.
I have discussed Emotional Awareness in below video
To achieve excellence and mastery in trading, you need to be mindful throughout the process of High-Quality Preparation, Effective Execution, and Constructive Self-Assessment. Engage mindfully and fully in the cycle of continuous improvement. As you work with this process of self-development and improvement over time, you will gain a sharper perspective on your trading psychology and your trading, embracing its probabilistic nature and the role it plays in your life.