You need to categorize which emotions are experienced in which moments. That way you can deal with them more effectively. I found Jared Tendler’s book, The Mental Game of Poker to be very well thought out and helpful.
I struggle with issues around losses. More specifically I struggle with risk aversion. You need to be very specific about what the problem is.
How does it impact my trading? I tend to close trades too early because of some price action I see in the consolidation which makes me doubt my position. Then I realize I was being silly and get back in, typically it works out. But this is costly. At first glance it is a bit impulsive, but the reasonining behind it is deeper. I’m trying to avoid taking a 1R loss. If I get out by myself, I don’t think of it as a loss. Even though it really still is. It’s an error trade.
The other manifestation of this is that I move my stops closer to the price after it has gone in my favour.
I’m very much against the idea of moving a trade to breakeven, because the market really doesn’t care about your position. Also there is no breakeven trade, you’re still risking whatever is in open profit.
I move the stop closer because I figure it shouldn’t return to that level if my trade is correct.
The reality is that typically the market is consolidating and my timing is rarely going to be 100% on a trade move. So I’m going to get chopped out. So why do I keep doing this? I’m trying to avoid taking a loss.
The key is as Mark Douglas so wonderfully put it. You must accept the risk on a trade, being willing to lose. Only then can you start to turn a profit. You have to put a specific amount of money up as risk on each trade and be willing to lose that money. Otherwise all manner of things can come out of the dark and affect your trading in ways that the less self aware will never see clearly.
Van Tharp’s Definitive Guide to Position Sizing has a very interesting piece in it where he discusses with a trader how much percent return they want. The trader says some large number, Van Tharp says that’s achievable, if he’s willing to live with 30% drawdowns (some large number, not sure the exact figure)
The trader says that’s too much. Van Tharp asks, how much are you willing to risk to make those kinds of returns? Trader says some much lower number. Van Tharp basically points out that the expectations and what it will take to get there are often out of whack because people don’t understand position sizing and the kinds of drawdowns that can occur.
The reality is that we get really messed up after large drawdowns, it makes trading much more difficult. It needs to be a seamless process where we can abandon a trade and move on to the next without too much trouble. Flexibility.
Only when you’re risking an amount that is not going to bother you (or affect your ability to trade) if you lose it will you be able to think clearly. There will always be emotions, you just want to avoid the elevated emotional extremes.
If you start approaching those levels, take a break. Or revisit The Mental Game of Poker to see how to handle things before they get so bad. The Hour Between the Dog and the Wolf has great information on this as well.