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In the trading profession, profits are hardly a sure thing. Even the most experienced traders make big mistakes and pay the price.

Professional traders, as well as independent short-term traders, can mount huge losses. If you are experiencing a severe drawdown, don't feel badly about it. You're not the first person, and you won't be the last, to experience a severe drawdown.

Emotionally, it is difficult to avoid feeling uneasy. And, depending on how severe the loss is, you may feel afraid, possibly ready to panic. Facing losses is one of the most difficult issues to deal with emotionally.

If you are an active professional trader, your identity and livelihood are on the line.

If you are a part-time trader, it's frustrating to feed your account from your day job, or savings, and wonder if you'll ever make back the money you've lost.

Depending on your personality and experience with the market, you may have trouble handling feelings of loss, guilt, and fear. But unless you get your emotions under control, you'll never be able to get back on track.

When some traders face a severe drawdown, they feel especially guilty. You can feel guilty when you break a personal moral rule. Losing money can make almost anyone feel guilty. You want to live by the rules your parents and teachers taught you, and many of them taught you to work hard and to save your money.

Trading requires risking money, and to many people risking money seems to go against the values they were taught. For example, when many novice traders announce to their family and friends that they are going to become a trader, the first reaction is "You're going to lose your money." They say it as if wanting to become a trader is automatically making a big mistake.

If you want to make huge profits, you're going to have to risk money, and in all likelihood you're going to lose a lot of it before you develop the skills you need to trade profitably across a variety of market conditions.

Are you going to lose money? Yes. Is it morally wrong? Not from the perspective of a trader. It's vital that you identify the beliefs underlying your guilt, and change them.

You must ask yourself whether your guilt is warranted. It isn't a good idea to rack up so many losses that you can't pay it back easily.

If you trade money that you just can't afford to lose or will have great difficulty in paying back, you will naturally feel guilty. It is important to make sure that your losses are reasonable, and actually a temporary setback. Or, if the losses reflect a lack of skills, make sure that you can easily cover your losses from another source. It will be hard to control guilt if it realistically reflects losses that will permanently harm your financial security.

If you determine that you can actually afford trading losses, and still feel guilty, you need to look at possible assumptions that may underlie your guilt.

One reason is that you may have been taught that money is sacred and that it is morally wrong to risk it and lose it for any reason. Many people hold this belief, but if you want to trade actively, you have to change the way you look at money. From the perspective of the serious trader, money is merely a vehicle used to make more money. It is just part of the tools you need to trade successfully.

Don't think of it as "money," but as "points" you use to keep score of how well you are doing.

A second assumption that underlies guilt is the need to be perfect. You may feel guilty because you believe that you must not make trading errors or rack up losses. You may believe that if you do, you are a "bad" person, or inadequate. It is essential to avoid taking losses personally. Losses are a natural part of trading. If you are a novice trader, you may mount losses, but it doesn't mean that you are a "bad" person.

If you have not yet developed the requisite trading skills, you are not a bad person or inadequate. And if you are a skilled trader in a severe drawdown, you may feel guilty about something that isn't your fault. It's possible that you are merely experiencing a temporary change in market conditions. You may need to change your approach, but it doesn't mean that you are inadequate. It just means that you need to explore more options.

Guilt isn't productive. When you feel guilty, you start to think about how bad things are.

There's no time to dwell on losses while actively trading. It gets you nowhere. If you want to stay ahead of the crowd, you have to actively solve your problems. You need to find new trading solutions. Guilt distracts you from working out creative solutions.

Guilt can protect you at times, but in trading, you may often feel guilty about losses that are just commonplace in the trading business.

If you are experiencing unproductive guilt, it is essential that you learn to control it. The more you can trade without guilt, the more profits you'll make.

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Tuesday, 23 July 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.