4 Steps For Handling Trading Losses
The experience of losing trades is a challenge that many traders face. For some, the aftermath of a losing trade can be particularly intense. Losses are an unavoidable part of trading, but one may still experience disbelief and anger, leading to sadness and potentially depression. Over time, sadness decreases in intensity, but accelerates when one opens up later on to process those feelings of sadness. However, if sadness is not addressed properly, it may spiral down and lead to symptoms of depression.
As every trader has their own unique traits, each person will react differently to trading losses and employ their own coping skills to deal with these losses. Traders who have built healthy trading habits (e.g. risk management, patience) and have emotional support (e.g. trading buddy, confidant) are more likely to recover from their losses on their own as time passes. This may take days, weeks, or months. Massive losses may take longer for traders to process before they are able to look back on them and adjust to the losses.
Handling a trading loss is painful and takes time, but there are healthy ways to deal with it.
The following 4-step process will help traders process and come to terms with their losses.
Step 1: Accepting the reality of the loss
First and foremost, you have to acknowledge and accept the fact that you have incurred a loss and are unable to undo what has happened.
When traders incur a loss, they are often in shock, disbelief, frustration, fear, and are unwilling or unable to believe that it has happened. Thoughts such as “This can’t be happening” or “I refuse to accept this” are temporary phases that many may go through in an attempt to escape from reality. This is a normal coping mechanism that humans put up as a shield to protect themselves from their environment.
However, running away does not help the situation, as your loss will catch up with you down the road. That shield prevents you from facing reality and in the long term can do more harm than good. To bring down this shield, you want to create a safe environment for yourself. Use prayer, meditation, or any other tool that can help you face reality and deal with the emotions.
The process of accepting your loss should be given your full attention while it is still fresh in your memory. Give yourself time to do so, but be aware of prolonging it too much, as it may keep you from moving forward.
Step 2: Give yourself permission to feel
Once you have come to terms with your loss, the next step is to let the emotions of losing trades all out.
What is important here is to allow yourself to let go and let the pain run its natural course. Be it letting your tears go, shouting into your pillow, screaming out loud, or going for a run, find an outlet that suits you to allow you to release all those emotions out in a healthy way.
If you do not allow yourself to feel, you might end up expressing your feelings in unhealthy ways like revenge trading, which might end up in further losses.
By facing your emotions, you are better serving your emotional health, allowing you to make better trading decisions the next time around.
Step 3: Share your feelings with others
It is important to share your feelings with other people, but this may be easier for some than others.
Some find it easier to just shut everyone else out after experiencing a loss. This is especially so if the loss is massive and it is easier to not have to explain why this came about. Resist this urge.
Find a confidant (e.g. a trading buddy) to share the experience of your loss with. It is healthy to talk about what happened as it allows you to “dump” whatever you are feeling on others. This helps you process and sort the emotions you are currently experiencing.
Do not worry about whether you are being incoherent and just rambling on. Your confidant is there to listen and provide you with emotional support. Trust me, more likely than not, you will feel lighter after, as if a burden has been lifted off your chest. Doing so will shift your mental state and prepare your mind for the next step.
Step 4: Learning from the loss
Every loss is a message and a chance for traders to learn and grow. Once you are able to step out of your emotions and evaluate the message, you are more aware of the mistakes that you made and you learn more about yourself.
Evaluate your loss by recording it in your journal. Go through the whole trade process itself and note down the mistakes you made, and reflecting on what you can do better for the next trade. Jotting down your emotions would be extremely helpful as it helps you better identify it the next time you hop on a trade. There is a saying that goes like this: “Help me change the things I can change, adjust to the things I cannot change, and give me the wisdom to know the difference.”
Losing trades are experiences that every trader will go through. It is important that you take time to process your losses. Hopefully that by using these steps, losses will be much easier to manage and dealt with in a healthy and process-oriented way. Ultimately, a trader’s ability to deal with losses can also be the catalyst for a renewed perspective on their trading system, helping them improve as a trader over time.
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