Monday, January 22, 2018

How Losses Can Help You Find More Winners | Trading Psychology

Today’s Trading Psychology question of the day…

“JJ, I need help dealing with losing trades.  I can be having a great day, but then one loss and all of a sudden, I lose my confidence and it seems to all unravel on me from there.  I know you can help me with this, what do you suggest for dealing with losses?”

In today’s psychology lesson, I’m going to show you a strategy for not only dealing with losses, but using the stress that comes with losses to earn MORE money in the future!

But before I go into today’s lesson, I need to remind you that this psychology lesson is the most recent in a series of videos that I publish every week, and these videos build on the topics we’ve already discussed, so if this is the first video you’re watching, you might want to go back and start from the beginning to get the most value out of these lessons. 

Here’s the link to watch from the beginning

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Ok, now that we got that out of the way… let’s get into today’s lesson.

The topic of today’s lesson is dealing with the stress that comes from losses…

In previous lessons we talked about how stress (as opposed to distress) can be used to our advantage when it’s combined with a positive mindset, when it’s used in combination with a productive daily goal, and when we’re working hard doing something that really matters to us…

In fact, human beings can put themselves under tremendous stress in all kinds of situations and still come out with a positive experience if they have the correct mindset and they use an effective coping strategy.

So today I want to talk about developing that mindset and the different coping strategies that we can use to turn the stress from a losing trade into something that will actually help you make MORE money in the long-run.

Correct Mindset

First, having the correct mindset means understanding that losses are a necessary part of trading. 

We can’t predict which trades will be winners or losers, so when we find ourselves in a bad position we have to take the loss quickly because it allows us to get into a better position and make a profit.  Taking losses, therefor, is essential for capital preservation, which is rule #1 for a successful trading career.

It’s important to embrace this different mindset.  Losses are tools of capital preservation, rather than just losing money.  They are a good thing when kept small and taking quickly during the trading day.

Losses become a problem when they take a big chunk of our account, when we take them personally, or when we allow the loss to prevent us from doing our job, which we’ll discuss further in a moment.

Daily Goal:

Next, if we want the correct mindset, we have to use a daily goal that’s within our control. 

Far too many traders have a daily goal that’s tied to a specific amount of profit, which is completely out of our control. 

For example, when I first start trading my daily goal was $500 per day, and I would force myself to trade the afternoon session if I hadn’t reached that number, and guess how many times I reached it?  Zero!

How do we know if the market will give us enough opportunities today?  What if it doesn’t?  Am I then a failure that day?  Do I beat myself up because I didn’t make $500, even when the market was uneventful?  Hopefully you see my point… this type of goal is not only short-cited but destructive as well.

A better, more productive strategy would be a daily goal that uses your trading journal to identify opportunities for improvement, and using that for your daily goal. 

For example, my goal today might be to avoid the temptation to move my stop-loss and just take a loss when a trade goes against me. Or, making sure to use ALL my entry rules before I take a trade.  These are examples of a daily goal that I can control, not the market, and that will not only make you a much better trader over the long-run, but you set yourself up for success with a positive mindset during the day, when you need it the most.


Another important factor of the correct mindset is having something to look forward to outside of trading, such as a hobby.

I realize that we all want to be successful, and most of us are willing to invest the time at our computers, but let’s be honest, we can’t work all day every day, we have to find something outside of our offices that bring us joy. 

Whatever it is, find something you can look forward to even if you don’t have a good day at your desk, because just like neglecting other parts of your personal life, it will soon bleed over into your professional life.  Find a hobby, something you enjoy, and you will see almost immediate improvement during your trading day as well because you will have fed your ego along the way.

Ok, so those are some tips for developing the right mindset, we’ve discussed most of those in previous lessons

Now let’s talk about the coping mechanism we use for losses. 

When combined with the correct mindset, an effective coping strategy can allow even the worst trader to see daily progress and eventually a successful trading career.

For example, every trader deals with losses, sometimes a series of losses, it’s not fun, but how we handle those losses will be the difference between a very short and painful attempt at trading, or a long and profitable career.

It’s all about how we cope with the stress that comes from losses…

We all learned how to cope with certain situations when we are young, and most of us still use the same strategies as adults… which is where we can get into trouble as traders.

For example, when we were children we may have used one coping strategy that worked well with Mom and Dad, but then we tried to use the same strategy at work and our Boss didn’t have the same response… and we could lose a good job because of it.  

Everyone copes with stressful situations in different ways, and our job today is to figure out how we cope with the stress of a losing trade, and see if that strategy is truly effective.

The most common strategies for coping with stress are…

·        Confrontation
·        Ignore & Avoid
·        Social Support
·        Blame Yourself
·        Step Back & Investigate

Let’s take a deeper look at each of these five strategies and let’s see which is most effective and why.


The first coping strategy for handling losses is one of the most common among type-A personality traders, and that is confrontation.

With this approach, when you take a loss you immediately try and take another trade to get back at the market.  Whatever pain the market gives you, well, you give it back 10 times more!

This type of coping strategy may work in high school locker rooms and some business environments, but…

Anyone who’s tried dealing with losses by pushing back at the markets knows that the markets don’t seem to mind the confrontation, they don’t get rattled easily, and they just keep moving like nothing happened. 

With a confrontational approach, the trader usually ends up losing MORE money, and even worse, works himself into such a horrible state that you’re exhausted and you wind up doing yourself long-term harm from the stress you’ve placed on your body.

If you find yourself in this type of “mental meltdown” situation, I did a video on this topic a few months ago, so make sure you check that out, ill put the link in the description.

Ignore & Avoid

The second way to handle the stress of losses is to just ignore it, pretend it never happened, and just move on.  This was my weapon of choice when I was learning to trade… what loss?  just ignore it!

This may work in social interactions with another person… the most effective way to deal with an obnoxious human being is to just ignore them and eventually they will tire-out and go away… it really works!

However, the idea of ignoring the losses as they pile up in your account isn’t going to make that problem go away.  And if you don’t start identifying and fixing those mistakes, you’re have ZERO chance of trading your way back into profits again.

You’ll keep making the same mistakes, keep losing money, and eventually get a margin call from your broker and your days of trading are over.

I can’t tell you how many times I speak to a client who is consistently losing money, but yet they truly believe that they will trade their way back into the green again, as if this losing streak is only temporary.  You’re lying to yourself if you think this is true. 

Trust me, that was my strategy for my first two blown accounts.

Social Support

The third common way of coping with stress is to seek social support, in other words, when things don’t go your way, you call your friends and they tell you how great you are and how it wasn’t your fault, and you feel better about yourself.

This works to an extent…but after your friends cheer you up, you still need to take the next trade, and unless your friends are professional traders, something tells me their advice isn’t going to make this go away.

Trading is an individual game, and no matter what your best friend says about how smart you are, the markets are going to open tomorrow and you will keep having the same troubles if you don’t do something different NOW.

One of my favorite mantras is that “life doesn’t get better by chance, it gets better by change.”  If you want different results, you need to use different ingredients.

Blame Yourself (or something else)

The fourth, and certainly one of the most common coping strategies is to blame yourself or something else. 

If we take a loss, we get angry at ourselves, blame our stupid indicators or our horrible charting software…

I used to do this way too often to myself… saying “what were we thinking about trying to be a day trader?  Are you an idiot?  You must be if you thought this would work you moron!”

Obviously, this type of strategy usually does more harm than good, and I find that I do this to myself when I’m over-tired from working too many hours, and a good night sleep and some time away from the desk usually takes care of it.

But again, even after you stop playing the blame game, you still need to make find a better way to trade.

Step Back & Investigate

The fifth way to cope with losses is to acknowledge the situation for what it is, take a step back, gather information, and then investigate why the loss occurred and how to prevent it from happening again in the future.

This is a much more difficult strategy because it requires us to take responsibility and then take immediate action, but when we lose money, it’s natural to want to place blame and avoid it altogether, which makes this strategy effective but challenging for most new traders.

Which works best?

So, which of these strategies works best?

Looking back at these four different coping strategies for losses, I think it’s pretty obvious that the “step back and investigate” strategy would be the most effective.  And, I think you could also toss in a little social support to help along the way.

If that’s the obvious answer… why don’t more people use it?

Because we all learned specific coping strategies when we were kids.  And now as adults trying to be traders it’s easy for us to assume that these strategies will work in the markets, and we don’t learn the lesson until it’s too late… until we’ve lost all of our money.

We’ve covered a LOT in this psychology lesson, Let’s do a quick recap and hone this strategy…

Coping with the stress of a loss comes down to mindset and strategy.

A proper mindset understands that you can’t have a successful trading career without taking some losses, they’re essential to the business, and that shift in mindset makes taking a loss a whole lot easier.

Another important aspect of mindset was using a daily goal that we control, so even if we do take a loss, we can still feel good about our trading if we accomplished that goal that will ultimately make us better traders in the long-run.

And lastly, having hobbies outside of trading…things that make us happy that don’t involve chart patterns, that’s essential for our overall well-being.

With that proper mindset, we then need the right strategy.

In my experience, the most effective is the “step back and investigate” strategy, combined with the social support strategy.

Keep in mind, everyone will use this strategy a little differently.

For example, If I take a loss, I take responsibility that I made the decision to enter the trade, the market didn’t make me, my broker didn’t make me, I take credit for the winners AND the losses.

I take a step back, and then immediately start investigating, trying to clear this issue and find a solution as soon as possible.

Other people, however, might take a loss, and then need to sleep on it and come back the next day with a clear mind so they can begin investigating the ways to avoid more losses in the future.

So, there’s no right or wrong way to use this strategy, but one thing’s for sure, you’ll know it in your stomach when you do it WRONG, you won’t feel right about it, so trust your gut.

Another thing to keep in mind…

Some traders get quite emotional when they take losses, and you may find what works best for you is to go outside and scream it out, blow off some steam, call your friends and tell them how crappy your day is going… but in the end, you come back and work it out with a level head.

Other traders won’t be so emotional, thinking more analytically, and they can tackle the investigation a little more aggressively at first.

And again, you need to find out what works best for you…

For example, I’m not the emotional type of trader.  When I take a loss, I swallow it, move on, and make changes so that it doesn’t keep happening.

If I tried to “scream it out” or if I called all my friends to vent, I would end feeling WORSE after that.

At the same time, if you’re someone who relies on social support after a loss, trying to sit back down to your desk in isolation isn’t going to work, you’re better off leaving your office, having some fun with friends, and coming back to work tomorrow.

So again, it’s really important to think about who you are and what variation of this coping strategy works best for you.

Do you take a step back and then immediately tackle the problem, or do you need to vent a little, get a good night’s sleep, talk with some friends about it, and then come back and work at it tomorrow? 

Once you learn which type of coping strategy works best, you now have the tools you need to deal with the worst the markets can throw at you, and when you combine a positive mindset, with the right coping strategy along with disciplined risk-management you give yourself a definite advantage in reaching your trading goals.

Wrapping things up… I hope you found a ton of value in today’s trading psychology lesson…

Do me a favor…drop me a comment below this video with any additional topics you’d like to see me cover in my next psychology video…

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend.

And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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  1. Thanks J.J. Could you touch on maintaining your strategy to stay with a trade. How to be aware of the average time a trade takes and the magnitude. I find myself pulling out of trades because I've attained that average profit, but if I maintained the trailing strategy I would have profited more.
    I rarely hear mentors talk about the time you may need to maintain a good trade.

    1. Great question! I did a video on this topic last week. Watch it here:


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