Psychological Impact of Losing Money When Trading – Week 59
This week I’m wrapping up the discussion around capital preservation by talking about the psychological impact of losing money. It’s difficult to quantify the psychological impact since each trader reacts differently to losing x percent. Which is why I stress that emotionally, you should be completely comfortable with the risk you take when you trade.
Tell us about some of your struggles or accomplishments when it comes to how you deal with capital preservation. Your comments help us all… post your message below!
Hi… Norman Hallett here with your next 4 Minute Drill for Traders.
I’d like to rap up our discussion on capital preservation with arguably THE most important issue surrounding capital preservation…
… and that is that we need to consider the PSYCHOLOGICAL impact of losing money.
Unlike most of the other techniques we’ve been discussing, this one CAN’T be quantified.
Obviously, no one likes to lose money. However, each individual trader reacts differently.
You must honestly ask yourself, “What would happen if I lose ‘X’ percent?
Would it have a material effect on my lifestyle, my family, my mental well-being?
You should be willing to accept the consequences of being stopped out on any and all of your trades. Emotionally, you should be completely comfortable with the risk you are taking.
I talk a lot about maintaining your positive expectancy when you trade… meaning you want to be always LOOKING FORWARD to a positive long-term outcome.
Losses along the way are just that… losses along the way to an overall positive outcome. Your trading will ALWAYS be a mixture of winning and losing trades.
And when I ask you to ask the question, “What happens if I lose X%?”… would it change my lifestyle?… I want to make sure that you are in balance.
You want to have a strong trading infrastructure and that means being adequately capitalized and then taking appropriate risks-per-trade.
You want to stay in balance… and by staying in balance you can trade with ease and with confidence and keep that strong positive expectance.
If you’re taking too much risk with respect to the size of your account, you start off the trade with concern… which leads to fear… which leads to making the wrong decisions when you trade.
Don’l let this happen to YOU.
If you’re undercapitalized, find smaller contracts or shorter time frames to trade so your risk fits properly with the size of your account.
And if you can’t do that… you really should stop trading until you can.
Your successful long-term trading depends largely on understanding the ways to identify and control risk.
It’s not about timing the big moves or geeing a home run hitter. That will come along the way.
It’s about risking a small percentage on any trade and keeping total risk exposure within pre-determined limits.
YOU CAN DO THIS! and why?
Because you’re The Disciplined Trader.
Feel free to leave your comments about your experiences with capital preservation or you just may want to comment on what we just covered.
Don’t be shy… we’re in this together.
So… Until Next time…
STAY DISCIPLINED!
Category: 4-Minute Drill for Traders
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Great 4 minute drill. I think when we truely understand capital preservation we truely understand that this form of generating money SHOULD be a slow, low risk deal……..The emotion attached to such a journey should never be under estimated and totally explorable!
simple and to the point, Always food for thought here Thank-you Norman and Tisha, these past few clips about capital preservation help me see the importance of maintaining my own personal balance, getting off to a good start is not any reason to get caviler. The tact of tightening risk at this point helps cement the importance of taking only high probability trades, and that is what the trading plan dictates in the first place. great stuff, helpful to hear it from a voice of experience. I feel like you are on my team feels good Thanks
Rome was not built in a day – neither will your fortune.
Trade with 0.2% risk and your losses will not affect you, compounded your wealth will soon grow to whatever you want.
Stop at a winner, which means you will enter the next days trading on a high!
Stop at a loser, sort out the problem and then enter the next day with renewed confidence and go on to win again and again and yet again!
It’s all in the mind!
I had a trading system that had some problems as I would sometimes stay in losing trades. Then I changed methods lost nearly continoiusly and have been froze ever since. I have since developed new methods but I’m scared to “pull the trigger”.
How on earth do you tell when a market is turning or just correcting? Every time I go in on a “correction” I find the move is over and I am trading the wrong way!
All the videos of capital preservation are excellent. In our pursue of making big money we tend to open many positions and keep deep stops for fear of not being stopped out. Inevitenly getting stopped out on many positions simulatenously and thereby incuriing a big drawdown.
nice series of capital preservation and good initiative “4 min drill”
Last week I broke all of my rules and doubled my trades on a method that was only showing 3 weeks worth of results. I placed 8 trades and they all lost. So my bank got hammered, worse still I stopped trading my main system which I had 2 years worth of profitable data and it had a successful week. I should of had a profitable week but had one of my worst trading weeks. I have been smashed confidence wise this week and I still don’t know how it happened. I had been listening to all the disciplined trader subconscious trainings. So why did I do what I did? Absolutely stupid to trade on where I had only a limited amount of results and to also double my trade amount and to go off my main proven system.
I agree with you, Its better to stop trading if he / she is under Capitalized cause the impact of one Stop Loss trade will propel to more Losing Trades