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Trying to Stay Detached

Winning traders approach the markets with a detached, unemotional, and rational mindset. As much as you've heard me say it time and time again in Chart Scan, it probably doesn't help to merely remind you of this fact. Cultivating such a mindset is easier said than done. If you are a novice trader, you're bound to get emotional when you trade. Your money is on the line, and you want to win. As much as you think, "I need to take losses in stride," you have probably found that when you are in a slump, sayings such as "losses are commonplace in trading," seem trite. But don't despair. With preparation, awareness, and practice, you can trade with a winning mindset.

Have you had a string of losses and felt awful? Maybe you were not depressed and ready to find a new way to make a living, but you felt beaten down. You knew it was just a passing phase and that you would snap out of it, but at that moment, you didn't feel like this unpleasant feeling would be gone soon. It can be distracting. During the trading day, you might trade impulsively because you know that if you can just make a win, you'll feel high, euphoric, and powerful. It's a great feeling, but trading impulsively can have a major downside: You could lose big and transform mere disappointment into severe pessimism. There are a few things you can do, however.

First, as trite as it sounds, monitoring your self-talk and expectations helps. Sayings such as "losses are to be expected" can help matters. Just reminding yourself of this basic fact of trading the markets can be quite consoling. It reminds you that by expecting losses, you are being realistic. Everyone is in the same boat, so why beat yourself up over a loss? Our emotions can be overpowering when we are caught off guard. But if we go in fully expecting the possibility of failure, we can mobilize our psychological resources more quickly and fight back immediately before our mood worsens. That doesn't mean going into a trade pessimistically expecting it to be a failure. What it does mean, however, is preparing to take a loss. Before the trading day begins, you should mentally rehearse how you'll deal with the loss. You might think, "I'm not going to be caught off guard. The trade may go wrong, and when it does, I'm going to just close it out and move on." You might also try to visually imagine losing and bowing out gracefully. Imagine yourself watching the price go in the wrong direction, and then calmly and decisively closing the position. Through a combination of monitoring your internal dialog and mentally visualizing what can go wrong, you can get ready to take a loss, so that when it happens, it won't hurt so bad and knock you off balance.

Finally, risk management is vital. If you risk more than you can afford to lose, you will naturally feel uneasy. When you aren't at ease, it's difficult to control your emotions, so when you face a loss, you are especially vulnerable and unable to regain composure. By controlling risk, you'll feel that you have little to lose, and you can feel consoled when you think, "It's not that bad; I can recover." Don't let emotions control you. The winning trader is rational and detached. By preparing for a loss with mental rehearsal, visualization, and risk management, you can stay calm and take losses in stride.


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Thursday, 13 June 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.