Dealing with Losses

In This Lesson

Processing losses and maintaining psychological resilience.

Duration: 35 min

Overview

Processing losses and maintaining psychological resilience. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

Loss as Probability Outcome

Understanding that losses are inevitable outcomes in probabilistic systems, not mistakes.

Emotional Processing Stages

The psychological stages after losses: shock, anger, bargaining, depression, acceptance.

Loss Aversion Bias

Natural tendency to feel losses more intensely than equivalent gains, leading to poor decisions.

Sunk Cost Fallacy

Throwing good money after bad because of already invested amount.

Resilience Building

Developing psychological toughness to bounce back from losses quickly and effectively.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Pre-define maximum acceptable loss per trade and per day before trading begins
2. Create loss processing ritual: acknowledge, analyze, learn, release, refocus
3. Track loss frequency vs expectations to confirm strategy performance
4. Use position sizing that makes losses financially and emotionally manageable
5. Develop perspective mantras: "One trade doesn't make a career"
6. Schedule regular breaks after predetermined loss levels

Common Mistakes to Avoid

Taking Losses Personally

Viewing losing trades as personal failures rather than normal business expenses.

Revenge Trading After Losses

Immediately trying to recover losses with larger positions or riskier trades.

Dwelling on Past Losses

Constantly thinking about previous losses, affecting focus and decision-making in current trades.

Key Takeaways

Losses are inevitable probability outcomes, not personal failures
How you handle losses determines long-term trading success more than win rate
Emotional processing of losses affects subsequent trading decisions
Position sizing should make losses psychologically acceptable
Building loss resilience is a learnable skill that improves with practice

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready