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Coping With Losses

  1. Luckyphill

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    Coping With Losses

    John F. Murray Ph.D.
    Special Advisor to Innerworth
    In this article we examine the painful topic of trading losses (ouch!) ... and offer some tips for successful coping.

    Losses have often been described as the greatest source of stress, and the single most important issue in trading. They may lead to emotional problems such as anxiety and depression, and unhealthy behaviors such as increased drug and alcohol abuse. Even worse, sudden or severe losses may knock you off balance, emotionally, and lead to further losses or even a major blowup. The negative consequences, moods, and behaviors that result from uncontrolled losses place even the most serious and experienced trader at risk for prolonged drawdowns and significant behavioral problems.

    Although millions of traders lose millions of dollars almost every trading day, there has been surprisingly little research into the consequences of trading losses or the psychological factors which may promote healing. For example, why do some traders adjust to losses with increased optimism and effort, while others – sometimes with even less damage to their account balances – plunge into the depths of depression or fail to make changes to halt an incipient losing streak?

    Although more severe losses can obviously occur with certain trading strategies and in certain markets, almost any trader can experience a significant loss at almost any time, and suffer the consequences, which can range from reduced trading capital to decreased self-esteem, and even to the loss of pleasure from their trading activities.

    Here are some tips to help you cope with your next losses:

    Maintain a positive, yet realistic, attitude about the reasons for the loss, and the preventive remedies you might want to put in place.
    Make sincere efforts to understand how the loss occurred. Don’t accept assumptions that are too easy or too simple. A deep understanding of what happened will help you identify the reasons for the loss, including what – if anything – you might have done wrong or might do differently next time.
    Social support protects against many of the negative effects of stress due to trading losses. You should look for contact with friends, family, and colleagues, rather than avoiding it.
    Successful performance imagery will help you keep your trading skills and strategies sharp, even when you’ve temporarily pulled back from the market until you’ve recovered emotionally from the loss. This same kind of imagery can also be used to help you reject or reduce any fear of further losses that may have taken root.
    You should set yourself several difficult yet attainable short- and long-term trading goals, as a way to monitor your progress toward full emotional recovery.
    In cases where you incur or even suspect severe psychological distress (such as depression or severe anxiety), do not hesitate to seek professional therapy.
    Investment psychologists are nowhere near fully integrated members of the trading team, and yet they can fruitfully be involved with and offer suggestions for improvement in many different aspects of trading, including how to deal with losses. Consider develop a long-term relationship with a coach, or a trading partner, that will let them help you (when and as necessary) with everything from loss prevention to the rehabilitation of your enthusiasm and motivation to trade.
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