Pain Management for Traders Traders do not profit on every trade. In fact, most do not profit on half of their trades. It’s not like other careers, jobs, or hobbies where you learn a skill and then put in the effort to get paid. A trader’s life in the financial markets is more akin to that of an entrepreneur. Our entry signal may or may not result in a profit. The stock, option, or futures contract we just purchased could rise or fall in value. We may have enough capital to pay off our house after many years of hard work, or we may lose $50,000 of our hard-earned money. In a raging bull market, we could make a million dollars or we could waste five years of hard work with nothing to show for it.
Trading is similar to many other new businesses in that it takes time to see a return on your investment. Aside from the difficulty of profitably trading a system, pain can be a barrier between a new trader and profits. When a trader does everything right but still loses money, he must deal with the mental pain of trading. The pain of losing will be amplified if you’re on a losing streak. The path to becoming one of the top 10% of long-term profitable traders is through pain management and perseverance.
Here are ten Pain Management for Traders
The agony of financial loss.
Trade in smaller increments to make it less painful.
The Agony of being wrong
The agony of being wrong about a trade you thought you knew everything about. (You lost simply because the market was not favourable to your particular trade; trend followers lose money in choppy markets, swing traders lose money in trending markets, and the market, not you, chooses the winning trade.)
The agony of a capital reduction.
(Even the best money managers in the world do not consistently hit all-time equity highs.) $10,000 to $20,000 to $15,000 to $25,000, back to $20,000, then up to $30,000, and finally into the six figures and beyond over time could be your path. Be confident enough in your risk management to ride your own equity curve for the long haul.)
Consecutive trading losses
Consecutive trading losses are difficult to overcome. They cause you to question your own abilities, your method, and your system. (You’ll need to remember your winning trades, winning years, or proof of your method’s profitability in back-testing or paper trading.)
Humiliation of public losses
You told everyone you knew about a fantastic deal, and you were completely wrong. (In any trade, never be overconfident, but always be sure of your stop loss.) Always be unsure whether you’ll win or lose a trade; just stick to your strategy.)
The agony of admitting you were mistaken.
You’re up $1,000 on a trade when a massive whipsaw wipes out all of your profits in one move, bringing you back to even on the trade. It’s pointless to cry over spilt milk; take your trailing stop and move on to the next trade. (Cut your losses and move on; trade reality, not your ego.)
Stop listening to gurus and start learning
You’re following a guru and realise he, like no one else, can’t predict the future. (You stop listening to gurus and start learning how to trade in a systematic way.)
Follow your strategy
When you take a position that meets all of your entry criteria, it hits your stop loss. Follow your strategy, exit the trade, and move on.
Double-check your research
You begin trading a system that performed exceptionally well in back-testing and promptly lose 10% of your account in a drawdown. (You should double-check your research to see if you made any errors; if the method is valid, stick with it so it can win in the long run; you may need to make minor adjustments to position sizing or stops to account for volatility that you may have overlooked.)
Never Give Up
Whatever the pain, don’t give up. Pain Management for Traders is important. There are great rewards in trading correctly over time, but you must enjoy the game and the journey.