How To Handle A String Of Losses
Everybody hates to lose and unfortunately no one is blessed
with the ability of foresight, therefore losses are an
unavoidable part of trading. When we enter a trade we will either
be right, or wrong, and even if we broke-even we'd still be
classed as being wrong - as nobody enters into a trade just to
break-even! When unsuccessful traders encounter a string of
losses they begin to engage in self-destructive patterns that
help them escape the pain they are experiencing.
In this article we bring to light these self-destructive
actions that can help you realize what you are doing before it
takes hold of your physical health. If you find yourself already
engaged in these patterns hopefully this article can help you to
get you back on track as quickly as possible.
The Destructive Patterns
If you find yourself caught in a string of losses or a bad
performing week/month be sure to monitor your behavior. It is
during this time that you will be at your most vulnerable. You
will begin to indulge in activities that at first seem harmless,
but upon excessive use (or in time), begin to cause physical
damage to your health.
Ask yourself the following question: during drawdown
periods do I find myself over-indulging in these activities:
> Food (especially junk food - eg. chocolate, ice-cream,
chips)?
> Sex (includes viewing pornography)?
> Alcohol?
> Drugs (includes excessive smoking)?
> Laziness (find it difficult to wake up in the
morning)?
> Entertainment?
All of the above taken in excessive doses can be detrimental
to your own physical health (some even in small doses!).
These activities above during your losing period are only
covering up the pain of confronting the true issue, and your body
tries to rid the emotional pain by trying to "fix" it with
physical pleasures. Unfortunately it is going about it in the
wrong way, so what should you do?
Firstly... REALIZE WHAT YOU ARE DOING AND STOP IT!
You need to realize what you're doing and you need to STOP
doing it immediately! You can either decide to stop, or you'll be
forced to stop when your body eventually breaks down and prevents
you from any form of movement. It will be much more beneficial to
you in the long-term if you can decide to stop *NOW*.
Once you have stopped you now need to figure out a way to
solve the pain - not by cutting out or neglecting it, but by
staring it in the face. Bring your problems out into the light,
be honest with yourself. There can be no growth without pain, you
are experiencing the emotional pain, now it is time to find the
error and therefore your growth.
Begin Your Review
The review process begins in two separate areas: You &
Your System. Here are some checklists for you to go through to
find out where the problem could lie:
"YOUR SYSTEM" CHECKLIST
> Was your system thoroughly tested prior to trading it (or
paper traded if you do not have the capacity to program your
system into back-testing software)?
> Did you test with out-of-sample data?
> Do you even have a system???? If you do not, how do you
even know if the method that you are trading is even
profitable??
> Is your system's code correct?
> Did you over-optimize your system? (what have we
discussed about over-indulging?)
> Did you paper trade your system prior to placing capital
on it?
> Did you trade with a small amount of capital prior to
placing the rest of your funds on it?
> Do you know the system's limitations?
> Did you properly drill your system? (see our
blog article on why I am the system designer from hell)
"YOU" CHECKLIST
> Is the current drawdown you are exhibiting with your
system normal?
> Are you comfortable with your system's historical
drawdown performance?
> Are you fully aware of the risks involved with your
system and the instruments you are trading?
> Are you trading with funds that you are comfortable
risking?
> Are you relying too heavily on your performance?
> Have you set realistic goals?
As you can see there are generally two areas that you need to
explore: the mechanical aspect - your system - and the emotional
aspect - you. Both can be responsible for making the way you feel
the way you do. It will either be an error on the system's side
with how the system was tested and/or programmed, or it can be
your own psychological profile not being comfortable with the
system's performance.
Your Answers = Change = Your Growth
What steps should we now take? Now that we have begun a
corrective process where we have stopped the evil nature of our
over-indulging ways to take control we should continue our
"corrective nature" by invoking our findings and taking ACTION in
correcting our errors.
If the problem was mechanical - fix it, if the problem was
emotional either go about setting up new thought patterns, or
change your current system. The answers lie in whether you need
to expand your knowledge in system development, or whether you
need to grow emotionally as a person.
Unfortunately there is no easy road, and even if there was
everybody would be doing it. Hopefully this article has made you
ponder over some of your behaviors during drawdown periods, be
sure to keep an eye on yourself and as always take care of your
body, because there's no use in making all the money in the world
when you don't have the physical capacity to enjoy it.
Ryan Sheehy is the author of http://www.currencysecrets.com
where you will find more free articles and resources on forex
trading. You can also subscribe for free to their monthly
newsletter.
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MORE RESOURCES updated Thu. February / 09 / 2012
