Pattern to Losses

People are creatures of habit. It’s been said we are what we do repeatedly. Traders are no different. They are are also creatures of habit. When it comes to losses in your trading, if you take a closer look, you will see there are patterns to your losses. Some may be obvious, some you may have to look deeper, but they are there.

Are you typically early on entry? Late? Do yo jump in and out causing small but consistent losses because you don’t trust the market to hit your target? Any of these can be traced to simple patterns of behavior that you engage in every day.

Are you always afraid you are going to miss a move and so you fail to wait for the market to get to your price when entering a trade? Only to find out that as soon as you click the mouse, the market drops right to your original entry that you never thought would be hit? It’s almost like the market knows you just entered, then they take it down.

Your losses have patterns. Early. Late. Jumping in and out. Chasing. It’s there and it’s up to you to find it. Until you do there’s nothing you can do about those losses as you will still engage in that same self destructive behavior.

So what can you do? First, take a personal inventory of your emotions. Is it fear that is dominant. Usually it’s fear that is the culprit but it can take many forms. There’s a big difference between fear of loss and fear of missing a move. But both are a result of fear. There’s a difference between fear of being wrong, and fear of losing money.

Traders I work with, when starting out all go on sim. You will make mistakes in the learning process and we are not going to risk real money while you are in the learning stages. But what is fascinating is there are traders, even when on sim, won’t pull the trigger on a trade. They can’t lose a dime, it’s on sim, yet they won’t take the trades. Right there we know its’ not about losing or about the money because you can’t lose. So what is that about? It’s about being right. Another saboteur in trading. Being right, having to be right all the time, is something that is ingrained in us from an early age. Call me any name in the book, but don’t call me wrong!

I Remember in grade school, the kid who finished the paper first and got 100 was the one who helped teacher correct the papers? If you got a 99, you did not get that special privilege. You were penalized for being wrong even by one point. It goes on and on throughout our upbringing. Our culture promotes this line of thinking. There’s a saying “Second place is the first loser”. That’s how we are raised. There’s no room for being right in trading and that character trait will cost you untold losses. Refusing to take a stop on your trading, or moving your stop is a result of this. It isn’t about right or wrong, it’s about probabilities. We play the odds. The odds are, if we trade and follow our rules we will make money. The odds are we will have losses along the way. We want to keep those losses to the particular method we are trading. We don’t want to add to the losses with self destructive behavior.

The pattern of my losses, yes I still take losses, was and is being early. Afraid I will miss the move. That’s been the dominant theme in my trading for years. Now that I am aware of it, it is not a big factor, but it is still there, ever present, ready to rear it’s ugly head and cause losses if I don’t pay attention. But I can only deal with it if I identify it and am aware of that pattern in my trading. There’s a pattern to your losses if you look closely.

It’s important to remember that when I talk of patterns of losses I am not talking about following your rules to the letter and having a normal day to day loss. No method or system is 100% so losses are expected. However, if your trading is not headed in the right direction and you are suffering undue losses, then you have to take the hard look at your trades and find the common denominator behind those losses above and beyond normal trading losses.

If you are early, write down why you are early. Fear of missing the trade? Lack of patience? Trade anxiety from missing the last 3 trades your method provided or you were late getting to your trading desk? Find the reason, then write down the worst case scenario as a result of missing the trade. When you think about it, it seems silly. Because the worst case is, you just miss the trade and perhaps some profits. As I like to say in my trading room, we might miss a trade, but we won’t miss the day!

Find the pattern to your losses and your trading will instantly improve. We talk about this and other aspects of the mental game in our trading room. Sign up for our FREE TRIAL to our trading room and get your losses under control.