Areas of coping with losses: preparation for trading
Knowing the system
As you may have guessed, I will revisit the substantive preparation - I mean the bore about the need for comprehensive knowledge of the system. This will help us know whether a loss is a natural operation of the system (and everyone has individual losses or periods of loss) or whether there is something else behind it.
You need to get used to natural periods of loss (in fact, not allowing it creates a strong psychological mechanism that can end up in the so-called "loss trap").
Securing capital - good management of the size of the position
Stress (and therefore the possibility of making a bad decision) and the risk of loss is lower when we have correct management of position size. When we follow the order: demo, minimum stake, then smoothly increase the position. And, of course, not exceeding the maximum size for the system, that is, 1, 2, 3 percent.
Take a look at the periods of "natural" losses of the system (yes, such a thing exists, it's normal) - what did the longest series look like?
Take into account that your capital will have to survive it - do a simulation of how it will decrease when such a period occurs.
Take into account that if you are at the beginning of the road - your loss period will probably be longer.
Your primary task as a trader is to protect your capital.
Mental preparation - accepting different possibilities of market developments
The unpredictability of the markets does not prevent the best traders from earning systematically - they take it into account and earn in spite of it.
Such a state of mind - acceptance of the unpredictability of the market and various possibilities for the development of the situation (including losses!) is also a good protection against foolish or emotional expansion of positions.
The scenario method helps here, which not only protects the psyche to some extent, but also has a direct beneficial effect on profits.
Mental preparation - meditation
Meditation is beneficial for obvious reasons. It calms the mind before entering the market, streamlines and lightens thinking, helps to deal with the "sludge" from previous orders. As a result, our decision-making process is better, so the risk of losses is lower.
Well-conducted meditation after a while becomes second nature in front of the screen and any sudden emotional processes have less force.
Mental preparation - learning attitude
The stress of a possible loss and the loss itself reduces the positive attitude towards the result: in the sense that from the order we can have three types of benefits:
- we can increase the account,
- we can learn something about ourselves, the system, the market, which will pay off in the future with high, stable earnings,
- we can, undergoing a "baptism of fire", getting in touch with our own reactions, emotions - learn something about ourselves and also strengthen mentally, which will eventually give benefits as above.
This is a good reason to look into them from time to time and read, think again. You'll see many things from a new perspective, it's natural, you're still learning and not standing still.
Slightly generalizing, we can say that the loss can be due to either the system (natural operation of the system) or another reason, our mistake, weakness, oversight, inattention.
When we catch this - we are already one step further, because by taking countermeasures now we can already have peace of mind about the subject in the future - where the consequences, for example, financial or psychological, could be much greater.
In the initial period, we should look at the losses with a kind eye, because if they are not due to the system and we can improve them are the staircase on which we quickly climb upwards.
Excerpt from an interview I did with Todd Judkins:
What experience do you remember best from your early days?
What I remember most is that in the beginning I did everything, literally everything, that my mentors said I shouldn't do!
Todd Judkins
Mental preparation - the mind-set of hitting the psychic
The element of surprise, when we don't expect a loss and it happens, is also important for the strength of the psychological resonance.
If we are prepared and expect it to occur - it is smaller. Over time it will be small, experience and traders' maturity makes us accept and get over it, knowing that at the end of the week or month we will still come out on top.
The period of testing the system is also a time to get used to losses. Then experimentally counting orders step by step for the first time we see that they are a natural consequence of the system. We can even estimate to some extent how much in the "worst case scenario" can disappear from our account.
This step is also intended to sensitize us to the issues of proper management of position size (position size within reasonable limits).
From the point of view of minimizing the negative resonance of losses - it is necessary to be proactively prepared for them, when, for example, we open a platform and previously had an order on the market, or when we have an order and look somewhere on the market to see what the current rate is.
Mental preparation at this point is a protective barrier against overreaction. It works well to recall a picture of the whole process that leads us to our goal - and to recall a picture of the goal itself. This gives a mature distance from a single outcome.
Look at a single order as part of a long series of events leading you to the realization of your goal. That's what the best traders in the world do.
As you may have guessed, I will revisit the substantive preparation - I mean the bore about the need for comprehensive knowledge of the system. This will help us know whether a loss is a natural operation of the system (and everyone has individual losses or periods of loss) or whether there is something else behind it.
You need to get used to natural periods of loss (in fact, not allowing it creates a strong psychological mechanism that can end up in the so-called "loss trap").
Securing capital - good management of the size of the position
Stress (and therefore the possibility of making a bad decision) and the risk of loss is lower when we have correct management of position size. When we follow the order: demo, minimum stake, then smoothly increase the position. And, of course, not exceeding the maximum size for the system, that is, 1, 2, 3 percent.
Take a look at the periods of "natural" losses of the system (yes, such a thing exists, it's normal) - what did the longest series look like?
Take into account that your capital will have to survive it - do a simulation of how it will decrease when such a period occurs.
Take into account that if you are at the beginning of the road - your loss period will probably be longer.
Your primary task as a trader is to protect your capital.
Mental preparation - accepting different possibilities of market developments
The unpredictability of the markets does not prevent the best traders from earning systematically - they take it into account and earn in spite of it.
Such a state of mind - acceptance of the unpredictability of the market and various possibilities for the development of the situation (including losses!) is also a good protection against foolish or emotional expansion of positions.
The scenario method helps here, which not only protects the psyche to some extent, but also has a direct beneficial effect on profits.
Mental preparation - meditation
Meditation is beneficial for obvious reasons. It calms the mind before entering the market, streamlines and lightens thinking, helps to deal with the "sludge" from previous orders. As a result, our decision-making process is better, so the risk of losses is lower.
Well-conducted meditation after a while becomes second nature in front of the screen and any sudden emotional processes have less force.
Mental preparation - learning attitude
The stress of a possible loss and the loss itself reduces the positive attitude towards the result: in the sense that from the order we can have three types of benefits:
- we can increase the account,
- we can learn something about ourselves, the system, the market, which will pay off in the future with high, stable earnings,
- we can, undergoing a "baptism of fire", getting in touch with our own reactions, emotions - learn something about ourselves and also strengthen mentally, which will eventually give benefits as above.
This is a good reason to look into them from time to time and read, think again. You'll see many things from a new perspective, it's natural, you're still learning and not standing still.
Slightly generalizing, we can say that the loss can be due to either the system (natural operation of the system) or another reason, our mistake, weakness, oversight, inattention.
When we catch this - we are already one step further, because by taking countermeasures now we can already have peace of mind about the subject in the future - where the consequences, for example, financial or psychological, could be much greater.
In the initial period, we should look at the losses with a kind eye, because if they are not due to the system and we can improve them are the staircase on which we quickly climb upwards.
Excerpt from an interview I did with Todd Judkins:
What experience do you remember best from your early days?
What I remember most is that in the beginning I did everything, literally everything, that my mentors said I shouldn't do!
Todd Judkins
Mental preparation - the mind-set of hitting the psychic
The element of surprise, when we don't expect a loss and it happens, is also important for the strength of the psychological resonance.
If we are prepared and expect it to occur - it is smaller. Over time it will be small, experience and traders' maturity makes us accept and get over it, knowing that at the end of the week or month we will still come out on top.
The period of testing the system is also a time to get used to losses. Then experimentally counting orders step by step for the first time we see that they are a natural consequence of the system. We can even estimate to some extent how much in the "worst case scenario" can disappear from our account.
This step is also intended to sensitize us to the issues of proper management of position size (position size within reasonable limits).
From the point of view of minimizing the negative resonance of losses - it is necessary to be proactively prepared for them, when, for example, we open a platform and previously had an order on the market, or when we have an order and look somewhere on the market to see what the current rate is.
Mental preparation at this point is a protective barrier against overreaction. It works well to recall a picture of the whole process that leads us to our goal - and to recall a picture of the goal itself. This gives a mature distance from a single outcome.
Look at a single order as part of a long series of events leading you to the realization of your goal. That's what the best traders in the world do.
