Can trading losses teach you more than wins?

Can trading losses teach you more than wins?

Jun 2, 2020 | 0 comments

Failures are options, after all. It is with your choice of how to deal with failure that you determine your fate.

When getting into the world of trading and investment, creating effective risk management strategies and establishing a solid money management system are key. But even the best crafted strategies and careful analysis of the market may not be enough. The key to being a successful trader, what will determine your fate, is your way of thinking. 

You see, trading is not entirely disconnected from emotion. Every trading decision you make sparks a series of chemical reactions in your brain, which can dull your frontal cortex —in charge of rational executive thinking— and spark the hypothalamus and connected neural network —in charge of more primitive actions—  in anticipation of a reward. As a trader, you may be acting purely on rationale, with your frontal cortex in control, but once you experience a win or a loss, that pain or pleasure is registered in your brain, causing decision making to awash in chemicals and emotional tension. 

Charts, news, and strategies can work well in a vacuum, but sentiment, the psychological drive which underpins the desire and decision to buy or sell, is not so simple. When your brain is flooded with adrenaline, cortisol or serotonin, emotions take over and rationale is thrown out the window. 

This brain chemistry can explain why traders will look to leverage losses, even at a cost of bigger losses, before they consider selling and moving on. Beginner traders are the most prone at getting excited over wins and devastated over a loss, making them even more susceptible to the risks of emotional trading. Seasoned traders may have become desensitized after having become familiar with the sensations of winning and losing multiple times. 

To become a successful trader, you must become desensitized to winning and losing, and it’s been proven by science that losing can teach you more than winning can. So other than losing early on in your trading career, chalking those losses to the cost of learning, you can also learn to identify the mindset of a successful trader so that you can teach yourself those traits.

The correct mindset in trading: 

As you work your way into the trading and investment world, tenacity and confidence are invaluable traits. Confidence and tenacity will help you put aside feelings of discouragement after a loss, and allow you to quickly adjust your strategy and think of a new plan of action. 

Another characteristic of successful traders is endurance. Without endurance, a losing trade may cause you to want to quit trading instead of pushing through. 

Flexibility also serves as a crucial part of a trader’s emotional toolbox. Traders must be able to adapt to any given situation and work their way out of sinking potholes and dead-ends. Flexible traders don’t fall in love with trades or strategies that no longer work for them.

Remember that markets are sometimes unpredictable, so the best thing you can do for your trading career is to get a grip on your emotions by accepting them and working through them.


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