Every trader experiences this. It's not a question of 'if'. It's a question of 'when'.
Downward spiral is basically having the wrong perspective and loosing a lot more than you intended continuously, thus psychologically and financially wrecking yourself.
Example(my story): I quadrupled my secondary forex account in 4 days. I was on a winning streak. I was having large wins and very small losses.
All of a sudden, I made a tiny mistake. I was caught on the wrong side and when I looked at the markets, I was down by a larger amount than my average losses.
Since I wasn't psychologically accustomed to losses like this, I waited for the market to turn even when the system is screaming to dump the trade(mistake 1). Losses kept getting larger and larger until a "tipping point" where I realized that there's no turning around.
I just lost half of my account.
The next day, I re-entered my market with an intention to win my money back(mistake 2). Eventually I lost that too and was down by more than half of my account.
In the end, I ended up where I began. THIS is a downward spiral.
It's inevitable: Beginners have large downward spirals and professionals have smaller. It's inevitable. It's a part of trading.
How to protect yourself:
1)The most important and the first step is to recognize that you're in the beginning stages of a downward spiral once your unrealized loss is bigger than your average losses.
2)Perspective shift: In my case, I have never really lost anything. I ended up where I began but psychologically I was beaten up into a pulp. I want to win my money back.
This is the perspective shift. After a lot of winning, you are "accustomed" to a win. Taking losses gets infinitely harder.
You need to always look at things in a broader perspective when you're caught up in short term psychological conflicts.
In my case, i would have been just fine if I had sat down and analyzed the trade from a broader perspective (I was still up by more than 100% !!).
I'm predicting that 100% of you reading this article will get into a downward spiral. You cannot escape from it. So, recognize it when it's at it's early stages and kill it before it becomes a big problem.
Downward spiral is basically having the wrong perspective and loosing a lot more than you intended continuously, thus psychologically and financially wrecking yourself.
Example(my story): I quadrupled my secondary forex account in 4 days. I was on a winning streak. I was having large wins and very small losses.
All of a sudden, I made a tiny mistake. I was caught on the wrong side and when I looked at the markets, I was down by a larger amount than my average losses.
Since I wasn't psychologically accustomed to losses like this, I waited for the market to turn even when the system is screaming to dump the trade(mistake 1). Losses kept getting larger and larger until a "tipping point" where I realized that there's no turning around.
I just lost half of my account.
The next day, I re-entered my market with an intention to win my money back(mistake 2). Eventually I lost that too and was down by more than half of my account.
In the end, I ended up where I began. THIS is a downward spiral.
It's inevitable: Beginners have large downward spirals and professionals have smaller. It's inevitable. It's a part of trading.
How to protect yourself:
1)The most important and the first step is to recognize that you're in the beginning stages of a downward spiral once your unrealized loss is bigger than your average losses.
2)Perspective shift: In my case, I have never really lost anything. I ended up where I began but psychologically I was beaten up into a pulp. I want to win my money back.
This is the perspective shift. After a lot of winning, you are "accustomed" to a win. Taking losses gets infinitely harder.
You need to always look at things in a broader perspective when you're caught up in short term psychological conflicts.
In my case, i would have been just fine if I had sat down and analyzed the trade from a broader perspective (I was still up by more than 100% !!).
I'm predicting that 100% of you reading this article will get into a downward spiral. You cannot escape from it. So, recognize it when it's at it's early stages and kill it before it becomes a big problem.
