Large trading losses. How do you overcome them

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How to Overcome Your Fears in Trading?

Last Updated on July 26, 2020

Do you hesitate to place a trade after losing 5 in a row?

Do you fear that your account will eventually blow up?

Most brokers and marketers want you to think that trading is easy. You click buy, the price goes higher, and you sell. Profit.

Your fears in trading are one of the biggest hurdles to overcome. In this post, I share with you the 5 biggest trading fears that destroy most traders, and how you can avoid it.

What is fear?

A distressing emotion aroused by impending danger, evil, pain etc . whether the threat is real or imagined; the feeling or condition of being afraid. Dictionary.com

The key is whether the threat is real or imagined. In trading, the threat is often imagined and leads you to make sub-optimal decisions.

There are 5 different kinds of fear that arise when trading, and you would encounter them at one point or another. But as you grow as a trader, you realize these fears can be embraced and fear is what will propel you forward.

So, what are these 5 trading fears?

Fear of the unknown

When you don’t know how much you can lose, you are gambling. You are subjected to the unknown forces of the market when price goes against you, leaving you paralyze and helpless.

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You don’t know if price will go back in your favor, and the only thing you do is hope. This is the fear of the unknown and is due to the lack of a proper trading education.

No surprise that new traders will likely encounter the fear of the unknown because the picture is painted bright and rosy, till reality sinks in.

Most are attracted to trading because of the freedom it can bring and the near-zero physical work involved, just a click of the mouse. However, what goes behind the scene is seldom talked about and much less publicized.

So, how do you overcome it?

The best way to overcome the fear of the unknown is to understand what trading is all about. You can expand your knowledge by reading good trading books and taking up trading courses.

Fear of being wrong

Our educational system is rooted in the construct of right and wrong. We are rewarded for what are deemed to be correct answers and the ensuing higher grades, which generally lead to more successful lives. Being right affirms and inflates our sense of self-worth. As students we learn to avoid as best we can the embarrassment of being wrong. Getting the right answer becomes the primary purpose of our education. Isn’t it regrettable that this may be inconsistent with actually learning? – Mel Schwartz

In short, human beings are culturally wired wanting to be right. We simply hate being wrong and will do whatever it takes just to defend ourselves.

But translate that into trading what do you get?

A trader who wants to win all the time at the expense of trading without a stop loss, and you know what happens in the end.

What can you learn from it?

You can be right 70% of the time and still lose money because your losses are much larger than your wins. E.g. Each winning trade makes you $1 and losing trade cost you $3. Assuming you win 7 trades and lose 3, netting you -$2 .

Likewise, you can be right 30% of the time and still make money because your wins are much larger than your losses. E.g. Each winning trade makes you $3 and losing trade cost you $1. Assuming you win 3 trades and lose 7, netting you $2 .

Remember, there is zero correlation between your winning % and your profitability.

Likewise, there is zero correlation between your IQ and your success as a trader.

I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstandingly intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional make-up is more important – William Eckhardt

Fear of missing out

Imagine you have been eyeing a new pair of sleek leather shoes for the longest time. One day you notice it is on sale but only for a limited time. What would you do?

I can almost guarantee you will rush to buy that pair of leather shoes without a second thought. After all, there isn’t anything to lose besides the money required to buy the shoes.

Why did you do it? Because the fear of missing out is so great that you quickly pounce onto the opportunity lest it gets away.

However, when you translate the fear of missing out into trading, that’s when things could get ugly.

Let’s say you had a plan to long at support because you notice price has been respecting it over the last few weeks. Unfortunately, you missed that trade and now price has rallied higher without you.

To avoid the fear of missing out, you went long at a much higher price which is usually when the market starts to turn.

So what can you do about it?

If you know your trading setups in advance, use limit or stop orders to get you into the trade.

For some reason should you miss your trading setup, simply let it go. There’s no point in chasing the market further and breaking your own trading rules, only to regret it later on.

Bear in mind that you cannot catch all moves in the market. Depending on your trading approach, some market conditions will be favorable to you, and some will not.

E.g. Trend follower is expected to capture trends in the market. Thus it does not make sense to have the fear of missing out at tops and bottoms in the market.

Fear of losses

Loss aversion refers to the tendency for people to prefer avoiding losses than acquiring gains. Studies by Amos Tversky and Daniel Kahneman suggest that losses are twice as psychologically powerful as gains.

This means that human beings are afraid of losing and would do whatever it takes to avoid losses. However, by avoiding losses it leads to decisions that are detrimental to your trading.

Failure to cut losses – When you are afraid to take a loss, you hesitate to cut your trades because you rather see a paper loss than a realized loss. And this eventually results in blowing up your trading account. (one of the reasons why human beings are not cut out for trading)

Hesitate to pull the trigger – When the fear of losses gets out of control, you hesitate in executing your trades when the time comes. The fear is always at the back of your head causing you to freeze like a deer in headlights. And this eventually causes you to miss profitable trades that could make up for the losses.

And if these isn’t enough, the fear of losses also leads to another problem. The fear of giving back profits.

So how do you handle the fear of losses?

1. Trade with money you can afford to lose (not money that is required to pay the bills)

2. Risk no more than 1% on each trade (you can lose 10 times in a row and the draw down is still manageable)

3. Understand that trading is dealing with probabilities never certainties (only death and taxes are certain)

If you can’t take a small loss, sooner or later you will take the mother of all losses – Ed Seykota

Fear of giving back profits

One of the biggest psychological hurdle a trader face is the fear of giving back profits. But how does it come about?

Let’s be honest, you enter the trading business because you thought it is easy, and do not know what you are actually getting into. Thus it is a norm for you to lose money during the initial stages of your trading. So what do you do?

Whenever you have a small profit in a trade, you do whatever it takes to protect it, fearing that it may turn into a loss. Otherwise known as the fear of giving back profits.

This is a function of how much you have lost in the past. The more you lost the greater your fear of giving back profits, and this vicious cycle repeats.

Looking at the example below you will see how a positive expectancy model is ruined by the fear of giving back profits.

Assume you have a 50% chance of making $10 for every $5 risk, and your next 7 trades look like this

If you allowed the math to play out you would have netted a gain of $10 . (- 20 + 30 )

However, you closed your trades whenever you saw a gain of $5 because of the fear of giving back profits.

This result in a net loss of $5 . (- 20 + 15 )

Now how do you overcome this?

Develop a trading plan that has clearly defined entries and exits, and follow your plan. By having a clearly defined plan, you will be more objective in your trading instead of trading based on emotions.

Conclusion

As a human being, it is normal to have fears in trading. But whether it cripples you or push you to new heights is entirely dependent on you.

I hope these solutions will help you deal with your fears and push your trading to new heights.

So how do you overcome your fears in trading?

Do you know the 5 Secrets of trend following that makes it profitable over the last 200 years? In my FREE trading course (valued at $48), I reveal to you what are the 5 secrets, and how it can improve your trading immediately.

Losses – How To Overcome Them And Transform Into Success

Each of us know the taste of defeat, loss. Most of us also know the taste and scent of success and “easy” money offered by Forex. Easy because it is nice to look (after taking the right decisions) when our account is growing. So what should we do to have less losing positions than profitable or those profitable to outweight the losing ones?

How not to loose on forex?

Each novice trader faces many obstacles on the way to success. Gaining knowledge and experience often requires years of study and practice, which in most cases is associated with fairly significant losses of capital, which every novice investor has to pay in the context of “apprenticeship”.

How to cope with this huge financial and mental health burden in order to survive this period and begin to systematically and steadily make money? This question bothers most people. Not many, however, realize that the time and cost is a kind of investment in the future, the value of which we set ourselves. While we can not predict how much time we have to spend to start earning steadily, costs can be kept to a minimum. I’m not talking about investing only on and on in your account DEMO because it leads nowhere. Speculating on a virtual account does not take into account the emotions that are pain in the neck for most traders and cause many stupid decisions. Demo is a good start to learn how trading platform works and to get familiar with market. Personally, I recommend as soon as possible transition to a real account and speculate on real money. To do this, you can use the bonuses offered by brokers.

Many traders, especially beginners, starts from the assumption that there is no need to waste time learning and trading with small amounts. They want a lot and quickly. Such an approach is due to the ignorance of facts and misconception of reality. People start watching films on the Internet and believe without a doubt trainers promise how quickly and safely you can earn millions. This is because life is short, many people come to the market to improve their current financial situation and believe that if they do not earn fast, then it does not make sense.

Ask yourself!

You should ask yourself a question. If you do not have enough time to earn slowly do you have enough time to lose ?

This what we lose while learning and gaining experience depends on the risk that we want to take. Is it not better to take advantage of the welcome bonus and learn on money offered from broker? Is not better to invest a small portion of our savings and allocate it to learn without worrying about whether we lose or earn? To start making money necessary is experience and familiarity with the market. To take “practice”, to build individual investment strategy and gain confidence you require to realize tens and even hundreds of transactions. So why throw ourselves to deep end and gamble risking our life savings? Definitely better solution is to set up even a micro account and learn the positions of the value of 0.0001 lot, where the transaction has a minimum value of EUR 10 (!). This approach will give a huge advantage in the future.

Example

Suppose that in order to build your own personalized strategy you need 1 000 transactions, of which 70% will be losers and the risk to reward is equal 1:1. Consider whether cheaper solution is posting of 700 losing positions with a value of 5 zł, the sum of which will be 3500 PLN and 300 transactions profitable for the amount 1500 PLN. In this way, the cost of your learning will be 2000 PLN. See how easily you can recalculate cost increase risking on position = 10 PLN. Does this assumption makes sense?

So how to approach professionally to learning ?

We should define our budget for investment. From this amount determine a percentage you want to spend on education. Place this amount on a broker account and open positions risking up to 0.5-1% of this amount in a single transaction. Your profits will not be large but do not think at this point about it. Try not to look at profits through the prism of the amount but through a percentage of capital invested. In this way, you’ll soon discover that, despite the small amount, your profitable positions are valuable.

After you start making money

When you gain experience and start earning systematically engage the remainder of your capital not forgetting to use rather percentage than amount approach. In this way, the profits will increase significantly and thanks to earlier reduction of costs incurred on learning you will much faster make up all losses associated with it and start to multiply capital, which was your target.

H. Jackson Brown said: “Do not give up a goal only because it takes time to achieve it. Time flows anyway. ”

Consider, however, what to do to not lose at the same time all your savings and prolong up your time on the market.

how do you overcome your losing trade??

what do you do with lossing position?
close with loss 56%
let them run until reach profit 6%
manage by headge 19%
manage by grade
  • Post # 1
  • Quote
  • First Post : Sep 10, 2020 3:13pm Sep 10, 2020 3:13pm
  • Post # 2
  • Quote
  • Sep 10, 2020 5:56pm Sep 10, 2020 5:56pm

combination of 1, 3, 4
+5: shout at my wife to live the room now!! LOL

seriously, it depends entirely on the situation.
the thing is, it most probably doesnt make a tiny different to your trading outcome, as you have your mind set to what probably you feel the best for you, and i have my mind set around what i feel the best for me.
one trades profitable with SL, another without SL.
end of the day, the only matter, do you trade profitable?
if yes, you doing the right thing. if not, you doing something wrong.
trading isnt about textbook solution, or the “best practice”.

it is about making money!

  • Post # 3
  • Quote
  • Sep 11, 2020 1:42am Sep 11, 2020 1:42am

  • Post # 4
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  • Sep 11, 2020 2:36am Sep 11, 2020 2:36am

Jokes aside. There isn’t really much to it. You’ve mentioned what can already be done. The only difference there is, is to change how you trade. Examples would be taking less trades, being more selective of what trades you take, be extremely lucky, etc.

  • Post # 5
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  • Sep 11, 2020 2:41am Sep 11, 2020 2:41am

grid and martingale are the same thing, “hedging” is a crazy way to close in loss.

I don’t manage single trades, I basket close when I reach my % target.

  • Post # 6
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  • Sep 11, 2020 2:56am Sep 11, 2020 2:56am

You have to know no one is going to have the correct entries all the time and if someone tell you he does, stay away from him. Any sane trader will tell you that it’s better to close the losses when the damage is still minimal. By doing so, you will at least have the opportunity to enter trade as you have preserve your fund without being recklessly adding to your losing position.

Recognizing your mistake is part of trading life whether you like it or not.

Speaking from my own experience, I do not do well with martingale. However, I do manage to reduce my losses by hedging (and sometimes, I managed to profit out from it) and it involves careful calculation and entries.

A lot of people here will be telling you different sort of stories mainly because they have this “if I can’t do it, nobody can do it” mentality. Don’t let other people dictate what you should be doing to your trades. You should decide on your own and if you can’t , sorry, perhaps you are not suited to trading at all.

  • Post # 7
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  • Edited at 3:44am Sep 11, 2020 3:06am | Edited at 3:44am

The first one without question. There is a period of planning before every trade, where I decide on the stop level too. The stop goes to the “danger zone”. The danger zone is the level, which is when reached by the price means, that my plan was wrong. When it is wrong, I get out, so the damage is minimised and my capital is not tied down in losing trades. Also I’m not emotionally impacted by them.

The reason so many people fail to use stop losses is either they make an ego out of trading, and view every loss as a personal failure, or they weren’t taught the proper method of placing stops, so they put them at wrong places where they are bound to be caught (either inside a trading range, or right above/below of obvious swingpoints.) Then they decide to abandon it instead.

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