1. Most Discussed
  2. Gainers & Losers

Coping With Losses







  1. IW Daily Feedback | Home



    Peak Performance


    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.
    The Trading Life

    Advisory Board
    Charities of the Month
    Coaching
    Investor's Journal
    Mood Meter
    Peak Performance
    Q & A
    Links & Partners
    Subscribe



    © 2001 Innerworth Innerworth Information
    >>This Site best viewed with IE 5.0 and above and a high speed connection.<<


DISCLAIMER:
Before making any financial decisions based on what you read, always consult an advisor or expert.

The HotCopper website is operated by Report Card Pty Ltd. Any information posted on the website has been prepared without taking into account your objectives, financial situation or needs and as such, you should before acting on the information or advice, consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs. Please be aware that any information posted on this site should not be considered to be financial product advice.

From time to time comments aimed at manipulating other investors may appear on these forums. Posters may post overly optimistic or pessimistic comments on particular stocks, in an attempt to influence other investors. It is not possible for management to moderate all posts so some misleading and inaccurate posts may still appear on these forums. If you do have serious concerns with a post or posts you should report a Terms of Use Violation (TOU) on the link above. Unless specifically stated persons posting on this site are NOT investment advisors and do NOT hold the necessary licence, or have any formal training, to give investment advice.

Top