Trading: Dealing with Pain and Loss

I trade equity futures and forex in addition to cryptos. I’ve got friends who are crazy and trade oil futures — some of them got hit pretty bad today with the -8% drop that occurred. As crypto traders, -8% isn’t a big deal — but in oil futures contracts it is significant. Their losses have effected them — I’ve had some big losses myself in my time as a trader. So today, I was reminded about the emotional state that a series of losses or a big loss can bring to our emotional and psychological health as traders.

Jonathan Morgan
8 min readAug 1, 2019

Dealing with pain and loss as traders.

One of the greatest problems we face as traders are the ones we rarely ever talk about: our emotional responses to loss. It is extremely normal and natural for us to not want to discuss loss. Loss is something that we learn about at a young age and as we develop and grow into adults. Certain unconscious and subconscious reactions that began at the development stage of our lives are just a part of us. We don’t even realize that when we are in a situation where our mind even perceives a crisis that might involve the pain of loss, it reacts. We react. We’re unwitting slaves to it. It’s absolutely amazing the ability for the brain to switch from a logical and controlled form of thinking to go right into the limbic ‘lizard’ part of our brain that deals with fight or flight. And that is irony as traders: one of our greatest defense mechanisms is our greatest enemy.

If you have had therapy before, then some of what is discussed is familiar to you. Also, if you’ve ever had therapy before and learned about yourself, you are light years ahead of your peers as far as the health of your trading goes. That is because when we bring up the discussion of ‘feelings’ people tend to mock it or ignore it or walk away from it. As traders though, that is so very, very dangerous. It is important to know yourself. It’s important to know your insecurities, your fears, your feelings, your anxieties, your thoughts and perception of self. You need to know you. You can have an IQ of a million but if your emotional IQ is 20, you will always fail. You need to know you.

It’s easy to say to yourself, “I know how I react when I have a losing position” or “I know I was upset, when I should have just taken the loss and not moved my stop” or “I know I was frustrated when I took profit early and then watch price move more and I tried to chase it only to get stopped out again.” Recognizing your reactions is the easy part. The hard part is recognizing the part between the triggering event and your reaction. And that is where your thoughts and feelings come into play.

Trading is not a psychologically normal human activity. It is the antithesis of human behavior.

If you think about it, trading is not normal. It’s the antithesis of normal! To become successful as a trader, you must put yourself into situations that will bring pain, suffering, and loss. You have to risk the thing that provides shelter, food, and clothing: your money. And that is the normal part of your job as a trader. You are actively competing against the most powerful forces in your body: the unconscious and subconscious mind. You are quite literally fighting yourself! And most of the time, the result is a failed trader. You get beat by you.

So how do you stop this invisible force that seeks to protect you at the expense of financial disaster? You can’t. And that is important to know. In fact, you don’t want to stop that kind of reaction! Knowing you have no control over something is often a relief. This is like Step 1 of Alcoholics Anonymous, “We admit to having no control over our unconscious and subconscious reactions.” When you admit that you are not in control of years of internal defense mechanisms, it stops becoming a Demon in you, and more like a scary monster. Still freaky, but at least it’s not a demon.

Addressing your reaction to the emotion accompanied by loss.

If we can’t we defeat ourselves or those defense mechanisms, what do we do? You learn to be aware. Sometimes, just being aware of what we are thinking, and the feeling is enough to stop our reactions from hurting our trading. This is difficult for people to do, to be aware. Again, this is not just saying that you give a voice to your thoughts and emotions by saying, “I feel scared. Ok, I know that now.” That is not enough. What you must do is something a little uncomfortable, but once you do it at let it happen, you almost feel like you got a new superpower.

The skill you use is like trading: It’s not normal. You approach it like trading: The opposite of normal. You are going to have to let yourself feel those thoughts, feelings, and emotions. And you know what? Not just let yourself feel them, let them wash over you, let yourself realize the extent to which you have unknowingly developed such powerful and effective ways to cope, avoid and handle the pain of loss. This is not an easy thing to do, it’s not a comfortable thing to do and some of you are probably disregarding this learning tool.

Let’s take a scenario that all traders are familiar with and maybe it’s happening to you right now:

Coping with fear and anxiety.

You’ve spent time analyzing a chart, a lot of time. You’ve been diligent and looking at the monthly, weekly, daily and now you’re looking at the hourly. You already assessed where the historical points of resistance and support are you’ve determined that the best course is too long, you’re just waiting for the setup. Some time goes by and finally, your set up! You take the long. And you watch it. You keep watching it.

As you’re watching, you are getting restless. Biting fingernails? Are knees shaking up and down? Drink a crap ton more coffee? Get up and pace thinking if you don’t look at it everything will be awesome when you sit back down? You go back to your screen and the total opposite happens of what you determined had the best probability of happening. Now, that’s right when you need to stop what you are doing and let those feelings take over.

Let them take over, but don’t let you react. Getting out of that trade before your stop or profit target is hit is just a way for you to get rid of the feelings you are having right now. Don’t give them control, give those feelings an open space. When you let it happen, it’s not something to be afraid of. There are skills you can practice that will help in those situations, courtesy of the mindfulness teaching all over the world:

  • Take a couple of minutes to notice your breathing. Since the flow of the breath, the rise, and fall of your belly. Diaphragm
  • Notice what you are doing as you are doing it and tune into your senses. When you are eating, notice the color, texture, and taste of the food.
  • Don’t feel that you need to fill up all your time with doing. Take some time to simply be. When your mind wanders to thinking, gently bring it back to your breath.
  • Recognize that thoughts are simply thoughts; you don’t need to believe them or react to them.
  • Notice where you tend to zone out (e.g., driving, emailing or texting, web surfing, feeding the dog, doing dishes, brushing teeth, etc.). Practice bringing more awareness to that activity.
  • Notice how your thoughts are probably judging you. Take notice of how much you probably beat yourself up with just thoughts.

Something you will notice as you learn to let yourself experience your own thoughts, feelings, and emotions is that you will be able to notice them earlier and earlier, to a point where you might be able to catch yourself knowing that you are going to react to something, knowing full well you can’t stop it. It’s kind of an awesome and amazing thing when it happens, knowing you’re not in control of things in your own head is weird and cool.

And don’t neglect to make sure you have a strong and solid foundation of your trading skills. Maybe you want to try something new?

Healthy Living and Thinking

Now there are other ways we as traders can mitigate strong emotional reactions to loss or crisis. Because it’s our money, and money is pretty much necessary, it’s difficult to make money trading it without having a freak out every once and a while. But if you are constantly and consistently panicking about your account, you need to stop yourself from continuing that behavior. Some things you can do right away are to reduce the size you put on the table, use a longer time frame, or even take a break.

Really, taking a break is essential. A lot of traders, especially new traders, treat this career as a video game. Trading is kind of like that, many could do it all day if they could. If you don’t have a regular sleep schedule, start. And you should be exercising! Not kidding. It’s amazing how much better you feel after a good work out. It’s essential for your physical health just as it is for your emotional health as well. Try using a standing desk!

Along with exercise is eating right. We need to be mindful of what we are putting into our bodies as traders, especially of our brains. The brain uses about 20% of your resting calories a day! Trading is such a brain intense activity that sugar alone is not going to help, caffeine is not going to help. What you need is a healthy diet that keeps your gut happy and your brain healthy. For those of you who have transitioned from a bad diet to a healthy diet, you know what it means to experience that change.

Don’t keep yourself to yourself, talk with someone.

Another essential thing you must talk to someone. Trading is an entirely too difficult journey to be taking on your own. Find a pastor, your spouse, a therapist a close friend. But find someone who will listen to your frustrations in the market. They don’t even have to know what you are talking about! But you would be amazed at what you can solve when you verbally sound it out. And you will feel much better.

And journal. Journaling is a powerful tool. Journaling can change the way you perform in the market by analyzing your past performance and feelings. You can see how often you strayed from your plan or traded off of emotion.

So in summary:

  1. Accept that you cannot change a lifetime of unconscious defenses towards situations of pain and loss.
  2. Allow yourself to experience your own thoughts, feelings, mood, and emotions. Don’t try to change them, just experience them.
  3. Reduce your trading commitment, avoid putting a full position on, ease back into it.
  4. Take a break! Take a vacation! Trading is a career, it’s not your life!
  5. Find someone to talk to about your trading day and your successes and your failures.
  6. Exercise! Exercise! Exercise!
  7. Journal, journal, journal.

Trading is a very difficult and lonely career and that solitude makes it even harder to cope with the strong emotions we face at times. So, make sure you take care of yourselves first before anything else!



Jonathan Morgan

Technical analyst, investor, trader, social distancing since before it was cool