How to Bounce Back Emotionally From Devastating Trading Psychology Setbacks


In sports, we have something we call “Uncle Mo.” Uncle Mo is an athlete’s nickname for momentum. Most athletes can remember a time when the momentum of a competition switched in their favor or toward their opponent. Even fans watching a game can call out events that become the catalyst for momentum switching teams. Those who play the game at a high level know when to push a little extra in an attempt to bring about Uncle Mo and take the air from under the wings of the competition.

Similarly, trading psychology can cause streaks—streaks of not feeling optimal or confident, which we call slumps. As well as streaks of extreme confidence. Not only does a day trader have to manage these streaks to avoid being too high or too low emotionally at any time, but they also have to guard against the emotional issues that happen on either side of momentum streaks.

When things get really good, a trader may experience greed, where their hot streaks make them feel invincible, leading them away from strict adherence to their trading strategy and plan. Conversely, when a trader feels like nothing they do can make them money in the market or follow their game plan, they may experience fear or throw caution to the wind and morph from day trader to gambler.

It’s important to have the correct tools to navigate the setbacks of day trading just as much as the good times. Depending on momentum, life around trading, and other factors, slumps can have a devastating effect on a trader’s psyche and overall life, casting a dark cloud over their performance.

I’ve been there. I’ve felt the hope leaking like a balloon just punctured with a sharp stick. This state can quickly turn from one bad occurrence to a series of bad decisions, possibly blowing the entire account, losing money, and blocking yourself from having the margin needed to enter a trade. You’re done! I want to share a tip that helps me avoid falling into the slump of mishaps that shake our confidence and empty our pockets.

Emotional States Have Accompanying Thoughts

All emotions have thoughts associated with them. This is slightly different for all people. We can go to research; however, a quick self-reflection can prove this. Think about the last time you were angry or upset with someone. At that moment, the chance of you staging all the love and joy you have for that person is buried under disappointment, frustration, and maybe even rage.

At that moment, your thoughts and words reflect the emotional state of anger. It takes time and maybe some helpful tools or resources to pull yourself out of this mental state. Maybe it’s watching comedy to make you laugh. Whatever tool you have to help with transforming your anger back into happiness, that tool illuminates the path to other levels of our psychology. In trading, we also need that light to pull us back into a state that produces actions in our best interest with our next trading action. That light is a trading system.

Bounce Back Emotionally From Devastating Trading Psychology Setbacks

The Foundation of Trading Psychology

In a recent article, we highlighted the importance of a trading success system. Let’s start there, however, with a higher perspective. Having a written game plan of action benefits day traders against trading psychology skids because it provides a path out of emotional darkness. The light of a game plan transcends the setback we experienced by shining light on the predetermined, clear mental state action to take. Instead of jumping back into a trade that quickly turned against you and hit your stop loss, your entry plan says you can only participate in the market when certain factors are met.

Seeking The Next Best Decision Will Elevate Your Trading Career

Part of a trading plan is market context, also known as experience. When we have documented experience from our engagement in the market, we create action plans on proper actions to take moving forward. From that experience, you have a written plan on what to do next when things don’t go your way. You can refer to this written plan as guidance when otherwise you would be lost in emotion and making decisions through those filters.

The key rule is when things aren’t going well in trading or after you make a mistake, ask yourself, “What is the best next decision I can make?” That may be locking in on adhering to the next entry, or it could be shutting things down for the day. Either way, it’s a success-driven decision because it isn’t driven by emotions and reactions.

5. Conclusion

Navigating trading psychology setbacks is crucial for long-term success in day trading. By recognizing the emotional states associated with trading, having a solid trading system, and making the next best decision based on experience rather than emotion, traders can bounce back from slumps and regain their confidence. Remember, setbacks are a part of the journey, but with the right tools and mindset, you can turn them into opportunities for growth and improvement.

5 Key Takeaways

  1. Recognize Emotional States: Understand that emotions like anger, fear, and greed have accompanying thoughts that can cloud judgment.
  2. Use a Trading System: A well-defined trading system acts as a guiding light, helping you make objective decisions even during emotional setbacks.
  3. Document Experience: Keep a detailed record of your trading experiences to create actionable plans for future trades.
  4. Make the Next Best Decision: Focus on making the next best decision based on your trading plan and experience, not on emotions.
  5. Embrace Setbacks as Learning Opportunities: View trading setbacks as opportunities to learn and grow, rather than as failures.

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