The psychological impact of a losing trade can affect your entire trading day or week by creating a fear of pulling the trigger on the next trade. For example, this morning, I reviewed all my charts and Crude seemed to have the most movement. All the charts were showing a downtrend. The 3 minute had just made a magenta peak, then pulled back to the ATR on diverging volume, so I entered a short position. Two bars later I was stopped out at 8 ticks per contract (total of 24 ticks on 3 contracts). The 12 minute chart had made a magenta peak and I had not noticed.
Psychological Impact of a Losing Trade
I had a choice, I could let the psychological impact of a losing trade screw up my trading day or I could “get over it” as part of the business and get on with trading. I opted to get over it and continue.
I waited for price to pullback to the Slow Moving Average, which coincided with the ATR on the 12 minute chart. After a close in my direction, I re-entered, anticipating price to go down. This time I was able to capture Clipper 1, Clipper 2, and after divergence at a low, I exited my position.
Total profit on this trade was 63 ticks. I was up about 39 ticks for the morning.
After the Crude trade, I was observing Gold, as it was bouncing off the 180 minute ATR. On the 3 minute chart, we had an ADX magenta peak, a pullback to the ATR, on diverging volume, so I entered a long position with 5 ticks of risk (with only 2 contracts). I was able to take Clipper 1 for 10 ticks but was stopped out at breakeven on the final contract (2 ticks).
Of course, after exiting my third trade, Gold pulls back to the ATR again and goes on to take Clipper 2. However, I am not in it as my trading day is over. Now, I could sit and cry because I was not in the trade or I could say job well done because I followed my trading plan. After 3 trades I am done unless it is Friday and, today is not Friday.
Today wasn’t my greatest day in trading but I did not let the psychological impact of a losing trade create fear and prevent me from pulling the trigger on my next trade.
Although my first trade, which cost me 24 ticks, was due to my own negligence of not observing the magenta peak on the 12 minute chart. I was down about $250 and I had a choice to make — I could beat myself up, I could allow my frustration to take over, I could focus on the loss of $250, or I could simply see the trade for what it was — a MISTAKE and move on to the next trade. My choice was to accept I am not perfect, I made a MISTAKE and I went on to the next trade. On the live edge, it would be much easier to allow my frustration to take over and feel like a loser. However, by following that choice, I am limiting my success as a trader. To think about my choices and choose the best option for an optimum outcome is much harder. It requires a different kind of analysis — the analysis of my thoughts and emotions. This means I have to be aware of the thoughts as they occur and the emotions before they take over. By becoming an observer of my own thoughts and emotions, I can halt the limited thinking behaviors and decide if an emotional response is needed, and, quite often in my trading, it is not warranted.