After many years of trading, I've come to the realization that I quite literally go through what is considered a traditional "grieving process" after a really bad day. 1. Denial and Shock - I skip past the denial, but the shock is definitely the first thing I experience after a really bad day...generally short lived. 2. Anger - This stage lasts the longest for me and kicks in quickly. I get so mad and pissed off it can at times take me weeks to get to the final stage if the drawdown was severe enough. 3. Bargaining - I become consumed with the "what if" aspect of the bargaining stage. What if I didn't make that trade, what if I was more patient, what if I didn't trade at all today, etc. The 'what if's' go on and on and remain somewhat intertwined with the anger stage. 4. Depression - This is the point where I think I've accepted the loss, but feel like total shit about it. There are definite feelings of hopelessness. 5. Acceptance - Of course at some point I accept what has happened and am ready to move on. I know from plenty of experience that stage five will occur at some point, and 1-4 will become a distant memory, but for whatever reason I still go through the grieving process. I guess for me acceptance simply takes time. Does anyone else relate?
yes, everyone relates, the result of overleveraging and mental stops.....Question is, do you learn from this or repeatedly do the same things that got you there?
I discovered a solution to the "really bad day" part of the equation, thereby preventing that painful and distracting grieving process. I now use hard stops and mental profit targets. How nice to be out of a trade with a small loss and not have the winners cut needlessly short.
My personal opinion is that expectation will prevent severe emotional reactions and encourage a quick recovery. EXPECT that you will take a loss eventually. The two things on your list that are the most self destructive are anger and especially DEPRESSION for obvious reasons. I believe here is a more logical framework for dealing with a loss versus the framework stated below: 1) Fully expect and realize that at some point in the future you WILL take a big loss. Prepare yourself mentally with those expectations. 2) Develop an action plan for when a loss takes place. 3) When a big loss takes place, implement the action plan. 4) Move towards acceptance immediately the day of the loss so you can move on quickly.
In trading cognitive dissonance is what sets the grieving process in motion. Your ego tells you something opposite what the market tells you. This creates dissonance in your brain which then you try to reduce by ignoring what the market tells you to do. Then you start the grieving process.