You’ve just lost your 7th trade in a row. Once again, your trading decisions have gone against you and the only thing you have to show for your efforts is your account reducing in size.
Let’s imagine this has happened over the last 3 weeks – you feel at a complete loss as to what you should do. There doesn’t seem to be an end in sight for your losing streak.
You start doubting your trading and analysis – perhaps even your strategy itself. Before you know it, you are thinking of leaving it all behind and moving on to something else.
That is a freak out moment.
Every single trader will experience a freak out moment at some point or another. This is common amongst most professions – but in trading it is slightly different.
Most traders are not trading with a company – they are trading for themselves.
This leaves you more vulnerable to freak out moments which in turn makes them a bigger threat to traders. You may not have colleagues to express your concerns to or a mentor to get words of advice from.
Therefore, it is vital for the independent trader to understand why these moments happen and how to deal with them.
But in this article, I am actually going to go over how you can avoid freak out moments, like the one above, using some very simple steps.
The Bigger Picture
When it comes to trading, one of the hardest things for new traders to truly grasp is context. Using our earlier example, let’s take a look at those 7 lost trades.
Those trades happened over the course of 3 weeks which feels like quite a long time – especially if it’s 3 weeks of negative experiences.
However, those 3 weeks and 7 trades are a drop in the bucket when it comes to the bigger picture.
Trading is much more like a marathon than a sprint. What is 7 lost trades when compared to a year in which you will take 200 trades?
The difficult part for most traders is realizing that, in the bigger picture, a losing streak will have a minimal impact.
Experienced traders have way less freak out moments because they have literally traded hundreds or thousands of times.
Even a losing streak of 10 is not going to kick-start a freak out moment for an experienced trader. They are mentally better prepared because they know how to deal with the problem versus an inexperienced trader that often doesn’t.
They have traded long enough to know better, essentially.
So, your first line of defence against preventing a freak out moment is understanding the bigger picture of your trading. Look at your losing streak in context to your overall trading.
More often than not, the situation won’t be as bad as you think.
This leads into a huge part of trading that is seriously overlooked by many traders…
Trading Psychology
Your psychology is the biggest reason as to why you have freak out moments.
Think about the state your mind will be in if you have only experienced losses over 3 weeks. You are going to have a very negative state of mind if you don’t tend to your psychology.
Let’s face it, no one likes to lose and no one especially likes to lose money.
That is why the swap from demo trading to live trading is one of the hardest transitions traders ever make.
Tangible consequences suddenly come into play and this has a huge impact on your mental state.
This carries over into your freak out moments. If you do not actively practice and build up your mental psychology you will be mentally weaker.
You need to practice keeping your mental state in a calm and objective manner when you are trading. That is a lot harder to do than it sounds and it is why the majority of new traders quit.
Negative thoughts pile up and actually influence your thinking into an increasingly negative way.
They can and will destroy your trading career if you are not cautious.
So do not overlook the importance of trading psychology! A strong mind is the best defence against freak out moments, but it is only through your own hard work that will get you there.
Discipline Equals Freedom
This follows on nicely from your trading psychology as practicing discipline will leak over into your mental state.
If your trading ritual is erratic and inconsistent, you have an unstable foundation that your trading relies on. This instability will lead to more errors and a higher chance of having freak out moments.
Discipline equals freedom in this sense.
If you are diligent with your trading journal, if you consistently check your charts everyday, you will build a foundation of confidence and stability from which to trade.
Unexpected events or big losses will often trigger freak out moments. But if you are disciplined with your trading you can expect the unexpected.
So if you have 5 minutes to spare use it to check the financial news. Be disciplined with yourself and keep your support and resistance areas up to date.
Being prepared is going to go a long way in preventing yourself from having freak out moments. Self-reliance is a huge factor when it comes to trading!
Assess Your Results
Speaking of self-reliance – if you are consistent with your trading journal you have a treasure trove of data and results that you can look back on!
The whole purpose of trading journals is to enable you to assess your results and make adjustments to your trading.
Part of avoiding freak out moments is analysing your trading journal. You can look at where you need to improve, but just as importantly where you are succeeding.
In relation to your trading psychology, it is vital that you don’t focus entirely on the negatives of your trading. This will create an atmosphere where doubt and freak outs are more likely to happen.
By analysing your results you keep the context of your trading at hand as well as informing yourself of how best to move forward.
This is a crucial step for every trader. Unfortunately, most traders don’t keep a proper journal until after their first year of trading.
Don’t make that mistake!
Advanced Traders: Dynamic Risk Management
My last step is for advanced traders only. A year of consistent trading is a minimum requirement before you entertain the idea of dynamic risk management.
Essentially, this means adjusting your risk in a way that minimizes your losses during phases of bad trading.
This is a difficult thing to master because it is so easily abused and poorly executed – especially by inexperienced traders.
This is one of many advanced methods that traders utilize to prevent freak out moments.
If you could lose less when you are in a losing streak, would you?
Do you think that losing less would reduce your chance of freaking out?
Yes, you most likely would. Dynamic risk management, when used correctly, is an effective method and really takes your trading to the next level.
This is a method I discuss in-depth in the Mastermind course and it has helped hundreds of my students avoid freak out moments.
So for all you traders out there who struggle with freak out moments – don’t worry. Every trader, even the best of the best, has experienced a freak out moment.
You just need to make sure you’re still around to come out the other side!