Handling the Emotions of a Trading Loss
In this video, Roger Hawes, a Corellian Academy Analyst addresses the often-taboo topic of trading losses, emphasizing the importance of handling them effectively to become better traders in the long term.
Hawes contends that in addition to acknowledging that losses are part of trading, it is also important to rationalize and control your emotional responses to trading losses. An example of trading the Australian Dollar against the US Dollar illustrates the negative effects that poor planning and emotional decision-making can have on a trader, resulting in frustration, and potentially detrimental behaviors.
Furthermore, Hawes distinguishes between “good losses”, which are manageable and enable traders to continue trading, and bad losses, which can erode confidence and capital.
Trading losses can result from making decisions without a trading plan, deviating from established strategies, and relying on emotions like fear and panic. As such, the video emphasizes the importance of preparation, following a trading plan, and continuously monitoring fundamentals to avoid bad losses.
Nonetheless, losses aren’t all black-or-white and though they are certainly harmful, they can also have a positive side.
As such, the positive aspect of accepting losses as a step toward improvement is emphasized by Hawes, who highlights the importance of learning from losses. It is recommended that traders analyze trades, evaluate performance, and keep a record of their trading experiences.To rebuild confidence, it is also suggested to gradually return to trading after taking a break and decompressing if losses accumulate.
In conclusion, a trader's evolution and long-term success are dependent on discipline, planning, and continual learning. A trader must learn to embrace losses, analyze them constructively, and maintain a positive mindset.
