Article Reviews, Trading

Overcoming the Fear of Loss in Trading (Cutting Winners Short, Holding Losers, and Inability to Pull the Trigger)

Came across a good article on where Tim Bourquin interviewed 3 psychologists on how to overcome the fear of “pulling the trigger” in trading.

The fear of “pulling the trigger” stems mainly from the fear of loss. That same fear is responsible for 3 major actions or inactions that destroy traders:

  1. Cutting winners short. You take what you can and fear that if you don’t grab whatever small gains you have now, they would disappear.
  2. Keeping losers. You don’t dare to actualize your losses and hope that the trade will turn around.
  3. Unable to take every valid trade setup. You don’t dare to pull the trigger because you have associated the intense negative emotions of losing or the possibility of losing with being in a trade, so you escape from experiencing those feelings by not entering into a trade.

Psychology was never an issue when I was swing trading stocks, but has now become a major stumbling block when I am trading intraday futures. Hence I have just started to look into this.

All three psychologists mentioned the need to trade small. Other advice include doing visualization exercises, mindfulness exercises, and looking at the bigger picture.

I also found two resources with mindfulness training and a related webinar, links below.

Dr Brett Steenbarger

  • If it is due to lack of confidence in the system, back test and/or paper trade the system.
  • If it is due to fear of loss (Steenbarger calls it performance anxiety), do visualization exercises where you picture yourself in the stressful situation but doing the right thing and keeping yourself in the right frame of mind. Also paper trade and trade small.

Dr Doug Hirschhorn

  • Practice trading with a small size so that the money you are losing / making is not a distraction (Hirschhorn calls the fear of loss the fear of re-injury).
  • Look at the bigger picture, a single trade does not matter, what matters is the outcome after a large number of trades.

Dr Gary Dayton

  • Learn the mental skill of being able to take a step back, observe your thoughts and feelings, and not buy into them (you might have associated entering a trade with losing money, but that is not true).
  • Do ‘mindfulness’ exercises.
  • Trade on the simulation.
  • Trade a size that you can manage emotionally and mentally.

Mindfulness Training Resources

Meditation Resources

Related Webinar



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