One minute your account is fully loaded and you are keen to get stuck into the markets.
The next, you’re vacantly staring at a string of zeros where your balance once resided, wondering, how did that just happen?
If you know how that hollow gut-wrenching feeling is like, then this post is worth a few minutes of your time…
Where Did it Go Wrong?
Blowing your entire trading bankroll is the worst thing that can happen for a new trader. It cuts far deeper than the financial cost alone.
But before we look at the solution we need to understand the problem. After all, you need to solve this problem for good if you are to succeed on a substantial level.
Identifying the problem:
One of the reasons trading is so difficult, is that each individual situation is rather unique. As are we, people.
Whilst I’d love to give you a one-size-fits-all solution, there isn’t one. Impulsive mistakes like blowing a trading bank or experiencing a very large loss are typically linked to human psychology and fear. Now, these fears are often similar between people, although it’s likely that different problems will affect different people on varying levels.
So the first a most important part of creating a solution is to understand your own personal triggers.
What is it that really ticks you off?
Think about the last time you blew a trading bank or made a similar trading mistake. Why was it? What happened in the minutes leading up to it?
For example, one of the original problems that I faced personally was well documented in early posts on this blog. It was my inability to accept a loss, particularly later within a training day.
There were several reasons for this:
- I didn’t like losing, who does?
- The monetary value attached to the loss
- Limited time to recoup the loss.
This would often be at the route of losing trading sessions for me when I started. That last point would really trigger me in particular. It’s almost like I could feel the strain looming as I approached the final few races.
Maybe take a peek at your own results – is there a certain part of the trading session where you typically go wrong?
To highlight why this is so individual and specific, I can recall new traders comments that are the total opposite of my problem. Some new traders are just so excitable and keen to get on with things that they incur big losses at the beginning of a session.
Tip: take a few minutes to look at your results and figure out what sets you off, it’s well invested time…
How to Make Good of Trading Blowouts:
Assuming you’ve identified some triggers, the next thing you want to do is identify your own emotions. Being aware of when you are being emotional, even if it’s in your subconscious thoughts is a really big deal. Focus on how you’re feeling in the moment, it’s too late for change afterwards.
Coupling up your previous trading triggers with self-awareness of your emotional state puts you in a significantly better position to progress.
Detaching yourself from emotion is easier said than done. However, if you should relapse or make a significant mistake, it’s important not to beat yourself up too much. Doing so will just enhance those emotional feelings.
Now, I wish I could give you a very dry and strategic solution to this problem, but as far as I’m aware it’s not possible – we’re all human at the end of the day.
The most effective route is to systematically and routinely attempt to adjust your point of view, whilst being hyper-aware.
The Core: Perspective
With these previous points in mind, it’s worthwhile going even deeper. Attempt to adapt your core trading perspectives.
For example, ask yourself whilst trading in the moment; what is the reality of this situation?
Has the market changed? Were you incorrect? Do you know what you’re doing?
If you’re unsure, should you really have a trade open? Let alone risking your entire bankroll on the line. Keep asking these pressing questions little and often.
Asking such questions is like giving yourself a psychological shake off. It might not be the most natural thing to do but it’s crucial where trading success is concerned.
Often I’ve seen new traders saying that they felt like they were sucked in, seemingly caught in the moment. Like a rabbit in the headlights, staring at the markets with tunnel vision looking for the result they want to see rather than reality.
Be aware of your own thoughts and try to reprogram yourself. Losing is not bad, impulsive behaviour is!
Stay aware, keep perspective and don’t be tempted to add to trade if you are unsure. There is no way to recoup a foolish mistake after it has happened, we just have to accept it. Prevention supersedes cure.
Beware: The Worst Outcome
Believe it or not, there is a worse outcome than blowing your bank…
Making a foolish mistake, putting your bank balance on the line and then getting away with it.
This is a real problem because it’s likely you will not berate yourself or learn anything from this, yet it’s damaging. You will just reinforce the behaviour until another day when the inevitable happens. Worse still, most new traders don’t even see this as a problem, because they didn’t lose any money.
It took me a while to make this second nature but professional traders do not congratulate themselves if they should escape a tricky situation via luck. Instead, we berate ourselves for it!
It’s a subtle but profound difference that will help you avoid massive losses over the long term.