Trading Psychology Tools: Dealing With Trading Losses And Tank Downturns- Part 1

We’ve all experienced it, a losing trade can be a painful thing. Experiencing a series of losing trades resulting in a significant drop in one’s trading tank can be even…

Categories: Professional, Tools, Trading Psychology

We’ve all experienced it, a losing trade can be a painful thing. Experiencing a series of losing trades resulting in a significant drop in one’s trading tank can be even more of a distressing experience. If we’re not careful, these emotions can then also affect our psychology in such a way that we react by trading worse, and increase the chance of experiencing even more losing trades. The end result can be a vicious cycle of distress, losing our money, and losing our minds!
So what can we do about reacting better to these inevitable undesirable trading results? Fortunately there are many tools and tricks available on how to react smartly, and therefore limit both the negative emotional and negative financial results which we are all trying to avoid. In fact, with enough know how and practice, it is quite possible to get to the stage where our psychological reactions to losses and downturns can be so effective that we ultimately end up feeling better, not worse, than before the loss had occurred!

In this series of articles I will be sharing with you some of the most effective tools I have ever used, as well as some of the amazing results I have experienced for myself which will inspire you to improve your own trading psychology and experience much more enjoyment and better financial results in your own trading. The key is simply to find the trading psychology tools which work best for your unique individual mind. So be open to trying out any new tools which you feel may be beneficial for you. And, with just a little practice, you should be able to quickly notice any exciting transformations occurring in your trading.

Tool 1- Creating Self-Manifested Momentum.

This is a simple and extremely powerful tool which when mastered will make an enormous difference to how you feel after experiencing a losing trade or tank downturn. The basic concept is this- ‘Don’t be effected by the undesirable financial momentum which you are experiencing through your external financial reality. But instead, be effected by the desirable financial momentum which you are experiencing through your own internal financial reality’.

Before we get in to how it’s done, let’s first establish why it is that we tend to feel bad when we experience a losing trade or tank downturn. When we lose, we don’t like it because before it happened we were in a better position. Our trading tank was larger and we had more money. But since then we have now found ourselves in a worse position because some money has been lost. And therefore, we have experienced some downward financial momentum. We may actually still be in a very good financial position, but never the less we may still feel bad because the momentum which we are experiencing is going down and not up. It’s just the nature of the mind that it becomes effected when it experiences momentum, so it’s understandable that we feel bad when momentum is going against us.

Now one important thing to focus on for grasping this first tool is the law of comparison. We’ve all heard the life advice of “Don’t compare yourself to that other person who has more of something than you, otherwise that will make you feel bad!” Or, “Don’t worry, things could be worse. There are some people who don’t even have such and such!”

So why is it that these sayings actually help people to feel better? Is it that upon hearing the advice that the person’s external situation has suddenly actually improved? No. It is simply a case of law of comparison. The person is now comparing themselves to a worse situation in an attempt to feel better about what they do have. Or, the person is avoiding comparing themselves to someone who has something which they don’t have. In both cases the person is using their mind intelligently to feel more positive, or more grateful about their situation. They are focusing on what good things they do have rather than what good things they don’t have.

So the trading tool ‘Creating Self-Manifested Momentum’ works using the same concept of comparison to help create a self-manifested feeling of positive momentum. Here’s how it works-

1- We use our IMAGINATION to find a financial scenario which would be worse, and we spend a little time applying our energy to that scenario.
2- Next, we apply the law of COMPARISON to now compare that worse scenario to the scenario which we are actually in.
3- And then finally, we come back fully to the scenario which we are actually in. By experiencing our self to now be in a significantly better situation than before, a feeling of positive MOMENTUM should automatically be experienced.


*Note- If we do not end up feeling significantly better after applying the tool, it is likely that either we have either not yet connected enough to the worse financial scenario we imagined, or, we need to imagine a financial scenario which is even worse. A comparison between a superior feeling over an inferior feeling must occur for any feeling of positive momentum to be created.

Let’s now apply this trading tool to a hypothetical trading example, and see what positive effect it could have.

Imagine that at the beginning of a week’s trading you had a starting tank of £1,000. During the start of the week you had 20 trades which overall performed badly and you had lost £100, bringing your tank down to £900. During the middle of the week you had another 15 trades which didn’t perform much better and you had lost a further £50 taking your tank down to £850. Then on the last day of the week you had a stretch of 5 losing trades in a row thus losing a further £50, taking your tank down to now just £800.

How would you feel? What kinds of thoughts would be running through your mind? How would these thoughts then effect your next upcoming trades? How would these thoughts effect your emotions?

It would be very natural for a trader in this position to compare their current situation of having a trading tank of £800, to their position one week before when it was at the higher amount of £1,000. It would also be natural to focus on the fact that the five most recent trades of the week all lost. And it would also be natural to focus on the fact that something in the trading system had performed badly to result in a negative P/L for the week.

Naturally we would not feel happy about all of this, and there would automatically would be some desire to reverse the experience so that we could feel good about our situation again. This is one of the potential danger situations for a trader. When we have the desire to mend the financial damage that has recently been done, our tendency is to now behave and trade in way which is different to usual. Different to if we had found ourselves in exactly the same position, but having found ourselves there through a different route. In other words, if we still found ourselves at the end of the week with a tank of £800, but had started that week with a tank of £800 or £700 for example, we would probably be feeling a lot more positive about our current situation. Right?

So here’s where the ‘Creating Self-Manifested Momentum’ tool comes in. As soon as we start to notice ourselves experiencing any negative thoughts, or any undesirable emotions, or and any ideas about how to now trade in way which deep down we know is not within our true and correct trading plan, we need to take a little time out to combat what’s happening to us.

We simply take a moment to take a deep breath, and start applying the tool IMAGINATION-COMPARISON-MOMENTUM!

It’s that simple. So if our tank has just taken a downturn of £200 to get to £800, then we can imagine that our tank has just taken an upturn of perhaps also £200 to get to £800.

It may sound silly, but it’s not! We are still acknowledging the reality that our tank is £800. So we are being entirely truthful about our present situation. But, how do we feel about our current situation now? If we have applied the tool well enough, we will be feeling far more positive and happy about it, because we will now be experiencing a sense of positive momentum behind us. And as a result we will now also probably be able to think cleaer and make better trading decisions moving forwards, thus increasing our chance of trading success.

Remember, we can never ultimately be in full control of whether our trades win or lose, or whether our tank goes up or down, as we can only be in control of the trades which we place and not of their outcome. But who’s to say that we cannot be in control of our thoughts and emotions? The mind has a natural way to react to things, and this will also vary from person to person. But the mind’s general nature is to think negatively, especially when undesirable external events have occurred. Fortunately, the mind can also be taken control of and with a little practice we can get good at reacting quickly to make it work for us, rather than just leaving it to work against us. And the great news is that this is possible even in the most difficult of trading situations.

Speaking from experience I can share that during the beginning of my trading career, following losses and tank downturns I would consistently react by thinking very negatively, which is quite natural. By failing to do anything to react effectively to these thoughts, it would also then result in me feeling very low, and often even drastically change the way I would then trade to a way that I knew was wrong. For example, sometimes I would start trading again too quickly, at a time I knew I did not want to trade, even placing trades on things which did not meet my criteria. I would do this because I wanted to reverse the feeling of downward momentum as soon as possible, even if that would mean experiencing just one winning trade. But even if I did get that one winning trade, although I would feel that momentum had shifted positively for me to some degree, I noticed that I still wouldn’t feel very good because I knew that I was now not trading how I should do, and that I was getting in to bad trading habits. I felt out of control and disappointed with myself with how I was handling myself.

But then after torturing myself with this process for years, I realized that it was possible to get a far better result in regards to responsing to any negative momentum, simply by using my own imagination! I started to become less and less down after losses, and the way I traded became more consistent and effective even when I experienced any significant losses or tank downturns.

Then after some time of getting good at this, amazingly what I noticed is that I now had the potential to react so effectively to any losses, that I ended up feeling better about things compared to how I felt before the loss had occurred in the first place! It felt as though I had actually just had some profitable trading P/L results, and that my momentum was actually on the up! In time what I realized I was doing to achieve this, was that I was applying the tool ‘Creating Self-Manifested Momentum’.

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