One of the many common hurdles traders go through when getting better at trading is the psychology of dealing with loss. To many this is probably the biggest challenge traders face when trying to be consistently profitable in the market. While many traders can deal with one loss they hit a particular barrier when dealing with multiple losses. This is what I refer to as the Traders Wall as it literally can destroy a potential trader from growing, however like anything there is a way to beat this wall down. In fact, there is a way to completely smash it down and never look at it again.
What Is the Trading Wall? And The Common Cycle of Traders Hitting the Wall..
The best way of describing the wall is the endurance and weakness traders get mentally when dealing with 2 to 3 losses in a row. To someone that understands probability this is no deal and keeping to money management will always get you past this challenge, however to some others this is there mental nightmare.
Stage one is accepting one loss, stage two at a second loss is looking at the strategy in a negative way even though there may be nothing wrong with the strategy and stage three, losing three trades in a row or more is the dangerous stage is which despair commonly sets in for some traders. They go from positive to negative expectancy within moments and in fact many start taking trades that do not fit there strategy after that and then the impeding stampede of losses increases.
Does this sound familiar?
If so, you are not alone, in fact nearly all traders go through this hurdle on there way to being professional and here is where I will lay down the facts in order to challenge this mental ordeal and how to break the cycle.
6 Ways to Beat the Trading Wall
- Making sure your strategy is good and abides by the three main rules of trading: proven effective, aligns with good risk to reward and is also price action driven. One such example of this is The Engulfing Trader Training Series.
- Number two is always use money management, only risk 2% per signal unless you are a highly experienced trader that has been consistently profitable for long periods of time. Even then, do not risk much more and there is a big reason for this. You see, 2% is a low number that we as traders can deal with, even if we get three losses in a row which is inevitable to happen every now and then. Thus 2% is something most of us will not sweat over or have sleepless nights over. If you are not sleeping well due to your trades, then I am talking to you pal. Use money management 🙂
- Accepting Probability.. Seriously except that maths will eventually give a bout of 2, 3 or even 4 possible losses in a row. Do not react to this when it happens, instead remember trading is a process and losing some trades while it does hurt is part of that process. Just like we all love winning streaks, it is inevitable that we all will be wrong sometimes so seriously just deal with it.
- Another factor is aligning all your trade signals with good risk to reward thus meaning when you are right, which I am sure is the majority of the time if you are using a good strategy then you know that your winners will easily cover your losses. A good example is by looking at a couple of my recent trades as an example. One recently I lost a position 1:1 and the other trade I got a 3:1 as a winner. Meaning I made 3 times the risk on the second position. Now because I was using a good strategy and It aligned with good risk to reward it meant even though I was wrong on one trade, the other easily covered its loss, plus made a hefty profit as well. The point is, we cannot win all our trades, however we can make sure that the trades we do win are allowed to run and lock in as much profit as possible. Thus giving us a better gain overall even when we have a few losses here and then. Now let’s look at this example again, imagine I lost 3 trades in a row and kept following my rules and strategy and then I got a 3 to 1 would I then of lost money.? If you answered no, you are right, in fact I broke even. I did not lose anything even when this challenged the traders psychological wall head on. The truth is we all get losses, but like all losing streaks they end, heck, we do not complain when we get winning streaks do we..?
- When you feel the emotions kicking in always walk away, trading and emotions do not mix. You know your strategy, stick to the process and let it look after you. As long as your strategy is good, why are you doubting it..? Remember like I mentioned before, there is nothing wrong with the strategy, it is you that is reacting. Remember, the strategy is proven to work a certain amount of time.
- Always be willing to stop, look in the mirror and ask yourself questions about how you feel about the market? Are you having a positive expectancy of yourself and your strategy, this is important because the strategy is one thing, however if you have no belief in yourself you will make bad choices based off not what the strategy is suggesting. The common rule is Trading is 80% mental and 20% analysis and execution, this is something to remember and ponder… If this is you, seriously now is the time to stop and do lots of and lots of back testing. Now is the time to reinforce your belief in yourself and your strategy.
Overall the Wall is a real thing and a hurdle but you can get past it as discussed above, just involves thinking differently to the masses that trade in this industry.
Above – In the Video Above I go over the Trading Wall and how it can effect many of us as Traders.
Accepting The Wall
Also this is not something to hide from either, the reason being is there is not a single trader that has not hit this hurdle from time to time. ( Yes even the experienced traders as well. )This wall effects nearly all traders, heck I have not met a single trader other than the gambling traders that does not get effected by it. And the reason why gambling traders do not get effected by it as much is because they are used to losing money and do not see trading much more than a slot machine.
That is another important point as well, take your trading seriously, have a journal, write down your experiences, write down your winners and how they effected you, write down how your losing trades effected you. Take note of things you learn from your winners as well as what you learn from your losing traders. Learn from yourself and see it like a business more so than just a thing you do. In a business there is always business expense, costs of rent, electricity etc. These should all be seen as spread or losses in the business. The point overall is to not to get too wrapped up in your losses, they always end and a winner is always around the corner. Even the best traders know this as well and it is partly what it means to be a professional trader.