The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
How to Cope with Losing in the Market
12/09/2014 6:00 am EST
In this article, Rob Colville, at FXEmpire.com, offers four tips for all traders—both newbies and seasoned professionals—to dramatically transform trading into a peaceful and relaxing hobby, as opposed to a highly stressful emotional rollercoaster.
Face it, who can deny that unmistakable feeling of euphoria when they make a killing from the market? Compare that to the stomach-churning pain of when you get it wrong then lose money and you have a wide range of emotions. The gulf between pleasure and pain can often feel enormous. But having the ability to keep your emotions in check when you are trading is a game-changer.
Taking the emotion out of trading is easier said than done. However, when mastered, it will dramatically help to transform your trading into a peaceful and relaxing hobby, as opposed to a highly stressful emotional rollercoaster.
Tip 1: Don’t Have Set Short-Term Expectations
It’s crucial to maintain an open mind. Accept that trades can win or lose. Sure, you may feel like you are entitled to a winning trade. Yes, you may have read books, attended the seminars, and spent thousands on your education…but does the market care about rewarding you for your efforts when you do come to place that trade? Heck, no. The market will simply do its thing regardless…even though you feel you may deserve a win.
Remember that your strategy is your edge in the market and that if it’s a proven profitably strategy that you should judge its performance based on the net sum of all trades and have expectations that span to the bigger picture rather than simply being in the moment. Don’t focus in the moment. Instead, picture a longer-term view.
Tip 2: Remember Investments Go Up and Down
The money spent on learning to trade is an investment in you; the “best kind of investment,” according to Benjamin Franklin. But be realistic in your expectations regarding what can be achieved over the medium- and long-term horizon rather than the here and now.
By having realistic expectations rather than entertaining dreams of grandeur, your goals will be far easier to achieve. Remember that 90% of people who have a go at trading simply fail. If you haven’t become a part of this statistic within your first year of trading then this is fantastic on its own.
Furthermore, if you are making an average of 2% per month then you will have trounced the annual rate of interest your bank is offering you per annum…in 30 days. It may not seem like much when in the present—but long term—this is an impressive track-record to have.
Tip 3: Accept Winning Some Battles Are Necessary to Win the War
Remember that markets are random…they can do absolutely anything at anytime. Bearing this in mind, the distribution of legitimate trade set-ups which conform to your rules to entry are random in their frequency…not to mention the frequency of winning outcomes compared to losses.
But you have to be in it to win it. With no way of telling in advance what the outcome of any trade set-up will be, you will need to trade each setup in pursuit of a profitable long-term outcome, as a result of your strategy’s edge.
No outcome to a trade set-up is guaranteed. Even some of the best looking trades out there, with the highest profit potential, could turn out to be duds. But through being true to your big picture vision of becoming consistently profitable long-term—by trading a bigger sample of trades—then you will need to simply view losing trades as part and parcel of trading; that losing a trade or a short-term strategic battle but one necessary in pursuit of winning the overall war.
Tip 4: Find a Hobby
Whatever you do, do not watch your trades. Not only does this cause your trading experience to feel like an emotional rollercoaster and mentally exhausting, it’s suicidal to your long-term prospects in the market. Furthermore, it will cause you to second guess what should have been a perfectly decent trade set-up.
Set the trade up, put the mouse down, and walk away from that computer. Providing you have positive reward to risk and have trade sized (essential), you can walk away safe in the knowledge that if the market proves you right, you stand to make far more than you lose if you are proved wrong.
By Rob Colville at FXEmpire.com
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...