Overcoming Losing

1. Accept The Inevitability of Losing — For active traders, losses are a part of the cost of doing business. Like any entrepreneur you should work to reduce your costs as much as possible, but expecting costs to be zero is unlikely.

2. Know Your Edge — You should only enter a trade when you feel you have an edge. For active traders, this edge is usually a technical indicator or pattern that signals to you the odds are more than likely price will move in a certain direction imminently.

3. Know Your Numbers — Knowing your edge well means that you should have expectations as to what your win rate and risk/reward should be. When you go through a losing streak, you can evaluate to see far off you are, and why you are off. For instance, I expect to win on about 3 out of 10 trades, and I look for a reward/risk of 3:1. So I don’t get concerned if I lose a whole bunch in a row, but when I lost 11 in a row, I knew I was off. It was a chance for me to re-visit my trades, find out where my plan needed some tweaking, if at all.

4. Relax — A polluted, frazzled mind will do you no good. I meditate, exercise, and play guitar to help the wounds of losses heal.

5. Smaller Positions — When you go on a losing streak, you can begin to lose confidence. Revenge trading and dwelling on your losses is not the answer; I think toning things down and taking smaller positions is a much better route. Once your confidence is built back up and you are no longer frazzled, you can go back to your normal position size. And once you do, your mind will be stronger and you will have greater confidence in your edge — which ultimately will make you a better trader.

6. Marathon Mentality — Unless you’ve taken on too much risk, no single short-term trade will change your life. It’s a marathon; treat it as such.