How to overcome the inability to accept small losses when wrong on trades?

[kmiklas]

Happy New Year 2018, kmiklas -- Many Happy returns. Good trading and good skill and good mind and good wisdom and good fortune and good tactics and good strategy and good execution and good psychology and good calmness,

Thank you, very kind of you to say I'm doing well this year, but trading very conservatively.

We always seem to hear about the great stories; like that time I took a huge short position on Cisco an hour before earnings any my account went off like a slot machine when they missed earnings... but we hear very few stories where peeps get hurt.

As I continue to trade, I'm starting to set aside my pride, and share my lemons too.

 

[ironchef]

I am having a very hard time with this psychological aspect of trading. I trade a discretionary chart reading method based on momentum reading and accumulation / distribution chart patterns. Been studying the method / charts for close to 10 months now and there is definitely an edge there in my ability to foresee possible moves before they happen. It's not perfect, and I get confused between time frames still but it is a method with an edge.

The problem is that when I start trading with leverage on full size futures contracts I have a run of good trades and make some money but then as soon as I get caught in a bad trade where I am wrong in my analysis or my entry is not that great, I just let my account bleed out and only bail when the pain is very bad, rather than when I knew I should have. There is some kind of psychological issue that makes me self sabotage for being wrong on the trade, like a punishment or something. I know I should bail but just cannot bring myself to doing it, then after I feel terrible shame for not being able to act.

I've read both the Mark Douglas books multiple times, read Psycho-Cybernetics and spend lots of time thinking about this stuff but still last week I got blown out on a stupid trade where I couldn't accept that my entry was wrong! This was after a month and a half of daily trading on GC / CL.

I can imagine that this is a common enough issue for discretionary traders. I am getting tired of blowing out accounts or getting margin calls. I don't want to give up on trading but I cannot seem to learn this very important risk management lesson for some reason.

It's frustrating to have to keep funding my account out of my savings. I have enough to keep doing this for a long time but still it is not an ideal situation obviously. This is a lesson that I must learn NOW before I do even more damage to myself financially and emotionally.

Has anyone that had this issue been able to over come it? How long did it take? What path did you take to get your head right?

My solution to that problem is unconventional and the pros here will laugh at me:

1. Gave up day trading and moved to swing trades. Then in 2013, moved to swing trade options exclusively.

2. Only trade stocks I don't mind owning. Many of my mistakes became my long term holdings.

3. Examples: MSFT, GOOG in 2007 became long term holdings.

4. Read IBD O'Neil, stop-loss and got out of FB, AMZN, BABA in 2014 instead of converting to long term holdings.

Best wishes to you.

 

[Illini Trader]

You may have read them, but you did not internalize them. Personally, I've never been able to read Douglas's first book cover to cover. It was like riding a bicycle too slowly; I kept falling (asleep). However, I did manage to read all of his second book. I may not have liked everything he wrote, but there were some nuggets worth savoring. That's why I made an effort to watch the videos posted in this thread:

https://www.elitetrader.com/et/threads/mark-douglas-how-to-think-like-a-professional-trader.319792/

You should take the time to watch the 4th video in the first post. It's almost 2 hours long, but it sounds like you need it. And then maybe watch it again.

Thank You for referencing these Mark Douglas videos from another thread. I will watch them all. I also suffer from this problem of taking a loss. In a very old out of print book called "The Investment Secrets of the Swiss Bankers" they talk about this problem and state there are three reasons that traders do not take a loss when they should:

1. They just to not want to be wrong.
2. They do not want to lose money.
3. They fear the market turning and making their original position profitable after having already taken the loss.

It is one thing to be aware of this and find it is still difficult to implement in a live trading situation. That is why trading is so psychologically difficult. The good traders consider taking losses as a cost of doing business and consider it a successful trade because they entered it with their edge.

It is obstacle that we just have to overcome in order to be among the successful ET traders. The battle is in our mind and only we can fight it and win it.

 

[Hooter]

Automation. Program a built in stop loss based on your risk parameters. No further decision making required

 

[eurusdzn]

I am not certain but this problem has been an issue when you have no edge.
If you are having a good year or are in phase with product or market it is easy to lose and scratch and move to next.
Sort of like trying to squeeze blood from a rock....it's not there...and can only lead to losses.
Is this edge current?

 

[BrooksRimes]

I've read 100+ books on trading and this is the best one on how to deal with the mental aspect of losses:
I also agree with other posters who advise using a contingent order to use a stop limit order to control the size of the loss. I do all my orders as OCO (one cancels the other) with one order to take a profit and one to take a loss. Having standing/contingent orders takes a lot of the emotions out. And if one doesn't know where to take a profit or loss, then more study of the system is in order. And the profit order could be some type of trailing profit order if that works.

 

[fordewind]

I like Dr Kenneth Reid view on inability to take losses.Check him out.Worth it.

 

[rtw]

I am having a very hard time with this psychological aspect of trading. I trade a discretionary chart reading method based on momentum reading and accumulation / distribution chart patterns. Been studying the method / charts for close to 10 months now and there is definitely an edge there in my ability to foresee possible moves before they happen. It's not perfect, and I get confused between time frames still but it is a method with an edge.

The problem is that when I start trading with leverage on full size futures contracts I have a run of good trades and make some money but then as soon as I get caught in a bad trade where I am wrong in my analysis or my entry is not that great, I just let my account bleed out and only bail when the pain is very bad, rather than when I knew I should have. There is some kind of psychological issue that makes me self sabotage for being wrong on the trade, like a punishment or something. I know I should bail but just cannot bring myself to doing it, then after I feel terrible shame for not being able to act.

I've read both the Mark Douglas books multiple times, read Psycho-Cybernetics and spend lots of time thinking about this stuff but still last week I got blown out on a stupid trade where I couldn't accept that my entry was wrong! This was after a month and a half of daily trading on GC / CL.

I can imagine that this is a common enough issue for discretionary traders. I am getting tired of blowing out accounts or getting margin calls. I don't want to give up on trading but I cannot seem to learn this very important risk management lesson for some reason.

It's frustrating to have to keep funding my account out of my savings. I have enough to keep doing this for a long time but still it is not an ideal situation obviously. This is a lesson that I must learn NOW before I do even more damage to myself financially and emotionally.

Has anyone that had this issue been able to over come it? How long did it take? What path did you take to get your head right?

another member asked for advice about how not to get stopped all the time when trading futures contracts some days ago. my advice to them is the same as to you;

i would recommend that you just forget about trading futures contracts. the level of leverage is insane and these markets imply far too much risk than what an ordinary retail trader can handle.

as you and several others have mentioned, trading successfully without stops is completely impossible, but trading successfully with stop orders is also almost completely impossible all the same. if you have already tried your hand in the futures markets you are aware of all the numerous deathtraps; from instruments where price goes nowhere for a long time but market makers still find ways to crush all the stop orders by retail traders, to instances where price does initially signal a strong trend but first there are two or three fakes where all retail investors are destroyed before price does make the decisive move it telegraphed previously (even after years i still almost always fall for these damn fakes). not to mention the obscene manipulation and rigging of markets where the global economy is in a far worse situation now than it ever was before 2007 - 2008 - 2009 but the latest stupid financial bubbles keep getting inflated ever higher (same thing with petroleum as you mentioned; all fundamentals have been very poor for more than a decade but declining petroleum prices would kill the latest stupid financial bubbles and equally importantly the house of saud is completely broke and desperately needs all the price manipulation it can get).


there's no need to trade futures contracts at all when there exist far superior instruments with defined risk, ample upside and very attractive leverage levels. there are instruments that would allow you to only create positions where you couldn't sabotage your trades even if you tried to.

 

[Xela]

I am getting tired of blowing out accounts or getting margin calls.

If you'll excuse some really "plain speaking" on a Sunday afternoon, until you really understand and internalize qxr's post on the previous page (this one), that's going to continue to be a problem for you: the deficiency that's repeatedly producing that outcome for you is mostly in your trading education and understanding, not your psychology.

 

[jinxu]

Has anyone that had this issue been able to over come it? How long did it take? What path did you take to get your head right?

Blow up your entire account and then start over. You think I may be kidding, but your psychology is like a drug addict. Meaning you won't change until you have hit rock bottom.

Building your psychological edge requires the experience of failure to defend against future failure. Just hope blowing up doesn't mean too much capital. Hehe.