For many, the process of learning to become a consistently profitable trader can be both long and demanding. I know that for myself, every facet of my emotions were tested and I really saw what "I was made of". I firmly believe that in order to become a trader one must really have full control of their mindset and this carries over to all other dimensions of life in a very positive way.
The point is that it seems in this universe that the things worth having require work - and it's directly proportional. The more work or 'harder' it is, the more precious and amazing the rewards.
If you asked anyone if they would like to sit at home on their computer and make money consistently month in and month out, and there is really no limit to the amounts they can ultimately make, almost everyone I know would LOVE that. It sounds so easy. You don't even have to take a shower if you don't want to. Or even get dressed!
But almost every trader will come across setbacks and hardships that will test their ability to sustain their focus and drive. This can typically be the by-product of several losses in a row. The reasons for such losses can sometimes be produced by a faulty use of a strategy or not being thorough in one's analysis. But sometimes it can be due to a lack of follow-through in the market and even in some cases it can be just a natural drawdown for the method being used.
Sometimes these losses or setbacks are not significant, and it could simply be month after month of breaking even or slowly bleeding the accounts dry by losing a little bit each month.
As a trader, you must realize what price you are willing to pay. It's a lot easier when all you have to worry about is yourself. But if you have family who is depending on you for income and lifestyle, it's a whole new ballgame.
These are decisions each person must make for themselves, and I highly encourage all my students that the money they use in the market during their learning stages must be 'play' money. It should be money that isn't required to pay the bills but rather money to BUILD their experience with so they can learn, hone, and master this craft.
There are many traders who have loved ones who don't understand what it is that they are trying to accomplish. What it means to be a 'daytrader'. Or anyone who derives the majority of their income from the stock market business. And these loved ones, for the RIGHT reasons based on THEIR belief systems, will try to talk the trader out of pursuing their goal of becoming a winning daytrader/investor.
What a trader must realize is that they are telling you these things usually from the right place - they care about you and to them, trading is gambling. However you must push this aside, but when you are constantly getting this negative feedback and commentary from friends and loved ones about your trading vocation and it gets buried in your subconscious mind it starts to nest there and cause problems.
Now, just like the ingredients for a recipe, you just put in a dash of consistently losing money each month, then put a pinch of the constant nagging and judgemental statements from family and friends, and then top it off with a cup of "losing streak", and it’s no wonder why a budding trader may just throw up their hands and pack it in.
The graveyard of 'past failed traders' is huge. It almost seems like everyone you come across gave some sort of trading or day trading a try in the late 90's to early 2000's. Heck the graveyard of failed traders is probably as populated as the graveyard of 'failed network marketers', but I digress.
In any event, the trader will begin to doubt their abilities to enter in a winning position, or even to execute stops. This creates a vicious circle that is very difficult to break out of.
The next time a trading opportunity appears our trader will typically let it pass by since there is a vivid fear of having a new loss on top of the prior 5. Now remember this trader also has mouths to feed, bills to pay, and everyone they know is telling them they are lazy, gambling, and need to get a real job. So this really pushes the trader to NOT pull the trigger on this trade that has signaled an entry based on the methodology the trader uses.
But as fate would have it, this one happens to work out as he would have planned it. And so does the next one and the next one too. So now the trader has the fuel of wrath from ‘missing out’ on these last few successful trades after having a number of consecutive losers in a row.
So what does our trader do? They take the next entry…and maybe due to his ‘rage' he jacks up his share size to make up for the 5 original losses and the 3 missed successful trades.....and the trade fails…miserably.
In fact, this trader is in such denial that instead of taking the stop, adds to the position to full leverage in hopes of being made whole. Unfortunately, this is how many a trading career ends. Slowly at first, then a few ingredients here and there - a few losses in a row, a few negative comments, a few missed trades - and whammo. Good-bye trading account. Welcome to the "failed traders graveyard".
So on a positive note, what must a trader do to avoid the Trader's Graveyard?
The first is the understanding that each and every trade is a minor part of “a lifetime of trades”. When our trader looks at 3 or 5 losing trades in a row as part of a larger task, they won’t seem so dire. It’s only when he has had a large percentage of his overall trades being losers that he should evaluate the reasons for this.
Every trader loses at some point on some trades. No one wins all the time. In order to attain the odds of a given strategy, you must realize that you’ll have losers, but if you become consistent, those losers will be a minority.
The second one is separating each and every trade from any others. Does this mean that you don’t learn from your mistakes and trades? NO! What this does mean is that every new trade you are about to enter has nothing to do with any previous trade.
For example, if you lost $500 on the last 2 trades and you see a new opportunity that allows you to share size so that if your target is hit you will make $300, then you must realize this. Many will hold this new trade longer than they should because they want to ‘feel whole’ and assume that since they are down $500 that they must make $500 on this trade. WRONG APPROACH!
If the trade offers $300, then that is what you need to shoot for regardless of your previous trades. Put most simplistically, you must reset to zero after a loss. You are not down $500 in this case…you need to take the approach that you are at $0 or break even. You cannot change the past. So you are at zero, plain and simple.