Let The Next Five Minutes Save Your Trading Career
As a beginner trader, one the most important concepts to understand is all about psychology. The sooner we figure this out, the faster we’ll get the desired results. There are so many great books about this matter that I recommend you reading (my favorite one is “Trade Mindfully” by Gary Dayton) that go further in detail on describing how complex we’re built as human beings when it comes to mind balance.
In particular, dealing with losses is by far the biggest issue among traders (read more about it in my previous blog post here). From the newbie to the most veteran of all, every single one of us will experience getting stopped out of a trade, realizing a loss. Especially for day traders, from this point on the strongest desire is to immediately make it all back. The problem is now that the emotional composure can be in real trouble causing the ability to get good decisions about the next trade to be seriously compromised.
In fact, I personally believe that the capability to promptly bounce back and recover from a loss is one of the hardest to achieve when it’s much easier to jump into another trade and, next thing you know, to get into even deeper holes. If you’ve ever found yourself in this situation, here are my own four practical instructions to deal with it.
Add these four practical steps to the trading routine
Right after a losing trade (more importantly, in case this is the first trade of the day) I highly recommend to:
- Stop Trading for 5 minutes: take a deep breath and start the countdown timer. Until it doesn’t reach zero, do not take any more trades. Until then, focus on the next two steps.
- Write down your emotional state: always keep a pen and a sheet of paper nearby the trading station. Whether is anger, frustration or anything else it doesn’t really matter. Writing down how you feel is an effective way to start letting it go.
- Have a short walk: this will allow your mind and body to “physically” get rid of that sensation and, also, you can take advantage of this time to mentally post-process the trade. Did you respect the trading plan? Remembering that losses are part of the game always help.
- Wait until the next “A” quality setup: get back to the trading station, make sure that the countdown has finished and start hunting for the net “A” quality setup to present itself knowing that now, after only five minutes, you may have recovered the proper psychological state to start trading again.
Of course, this time-span is arbitrary and can be readjusted to fit your own personality. A great approach can be to lower this countdown time as experience grows. The main point remains that discipline, perseverance and patience will make a trader being successful in the long run.
“Use the losses and failures of the past as a reason for action, not inaction.” -Charles J. Givens
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