The Psychology of Day Trading – How to Survive Trading Losses

Let’s face it, trading losses can be tough. Nobody likes to lose money. Every trader will learn sooner or later that trading losses are a normal part of the game. However, many traders find it difficult to accept inevitable trading losses.

If we cannot accept the loss

It is the ability to accept the occasional trading loss that can be the key factor in whether you become a profitable trader. I am not saying that loss trading is encouraged; but how you deal with losses can make a big difference in your trading success.

Failure to tolerate and properly handle trades that don’t work directly leads to trading errors. It is the inability to handle the inevitable losing trade that causes traders to cut winning trades, move stops mid-trade, hold losing trades, move down the average, and not pull the trigger on reliable trade setups.

Learning to accept and deal with trading losses can be just as important as making good trades.

Survival tips

Here are seven steps you can take to survive and even thrive when you experience a loss:

  1. Record the transaction as it happened: Do not sweep losses under the carpet! You need to learn from a loss (that’s its value), so write it down. Include how you viewed the market at the time and how market action and your indicators meet the criteria for a sound trade setup.
  2. Rate the trade: After the trading day is over, go back to what you wrote and see what you can learn. Have you not read the market? Was there something you couldn’t check? Did you accept a trade even though it didn’t meet your trade criteria? Or, whether the trading setup was valid; just failed?
  3. Use loss as a learning opportunity: Ask yourself, “What can I learn from this trade?” Is it possible to get information about market actions? Is there something in your trading behavior that needs to be addressed? Either way, you have an opportunity to learn something new, and that’s valuable!
  4. Take immediate corrective action: Do you need to change your trade settings? Is a rule of personal discipline necessary? Whatever you learn, take immediate action.
  5. Keep your head and the right attitude: You always have a choice about attitude. You can accept a loss as an inevitable part of trading and be grateful for what you can learn from it, or you can enter a negative, downward spiral of feeling bad, beating yourself up and making yourself feel even more miserable. Follow the constructive steps outlined here and stay on top of it all.
  6. Remember that trading is based on probabilities: Every trade setup has a probability of winning and a probability of losing. With a large number of trades, the setup will preferably be profitable. Any trade is always uncertain. This is the law of probability trading.
  7. Reach out to others: We all need support. Talk to your trading buddy, mentor, partner, or spouse. It helps to decompress a bit and you can get a different perspective.

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