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Why Trading Losses Are Painful, And What You Can Do About It

Why Losses Are Painful, And What You Can Do About It

Let’s be clear: losses are not a problem. To look at them as problems is to take a wrong step. They’re part of this business. Everyone goes through them. You can’t avoid them. The best you can do is to minimise their impact through strategic risk management.

But, it’s true, even then, the act of taking a loss is inherently painful.

Recently, I shared this on Twitter:


Where there is a perceived loss, there is pain. Inevitably. But emotions mainly arise in response to what you think something means, not to the thing itself.

Consider these two scenarios…

Scenario 1

Suppose you come back from the gym after an especially intensive workout session. A couple of hours later, you feel some intense muscular pain on your body. But you are okay with it. You actually feel satisfied with yourself because you know you’ve had a good workout, and the muscular pain is arising as a result.

Scenario 2

Imagine now that you didn’t go to the gym and started having the same kind of pain all over your body, like that, for no apparent reason, out of the blue. You would probably think that there’s something horribly wrong with you, wouldn’t you? You would certainly freak out, thinking you’re having a terminal illness or something…

In the first case, physical pain was welcomed in the context of intense athletic exertion; it lets you know that you are performing at your maximum.

In the second case, the same physical pain in another context yielded a different response – one of fear.

So you see, the meaning we give to things determine our emotional response and our next set of actions. Even emotions that seem extremely direct and biologically determined are mediated by meaning.

For instance, your mother kissing you will produce an entirely different emotional response than your girlfriend or wife…

Again, it all depends on the meaning.

Mindful awareness is a quality of mind that you should learn to develop because it’s a kind of freedom from fixed meanings and stories. This is not to say that meaning-making is always bad. It’s not. It is useful, but mindful awareness frees you from automatic interpretations from habitual responses, and that gives you the benefit of choice.

Let me explain…

When taking a loss, here is the pattern one typically falls into:

  • The loss occurs.
  • The event is perceived and immediately interpreted, based on some familiar framework of meaning-making.
  • An emotion arises in response to the meaning you have given it.

Now, without a quality of mindful awareness:

  • You’ll give equal weighting to all your thoughts and emotions, even though they don’t all deserve to be listened to and trusted.
  • You have no (or little) choice. The energy of said emotions will demand expression. They have to be channeled one way or the other. So you’ll eventually do something that seems mandatory based on the interpretation of those emotions.

But, with a quality of mindful awareness:

  • You’ll notice the process of meaning-making as it starts, and you’ll discern wisely what is arising as feelings in your body.
  • You’ll feel those as they are, without judging or wishing things to be different (full acceptance of what is). In doing so, you’ll automatically defuse them, and you’ll then have the freedom to choose how you want to respond instead of just blindly reacting.
  • You’ll be able to trade in the moment—and at the same time, to accept any outcome.

How to develop mindful awareness

It’s very simple: Pick up a meditation practice! But not every meditation practice will do since not all of them are created equal and provide the same benefits.

For instance, many systems of meditation will have the meditator focus their mind upon some items, such as prayer, a chant, mantra, a candle flame, a religious image or whatever, while excluding all other thoughts and perceptions from their consciousness.

The result is often a state of rapture which lasts until the meditator ends the session of sitting. It is beautiful, delightful, meaningful and alluring, but only temporary. Which locks you again in story-making — why is it over? I want more of it, etc.

So you need a meditation practice that gets you out of that cycle; that helps you develop a quality of mindful awareness so that you can learn to notice things, states, conditions as arising and passing, and doing so with complete equanimity.  (More about that in the Trading Psychology Mastery Course.)

After you’ve picked up a meditation practice, look to apply the quality of equanimity you develop into your trading. Focus, patience, wise discernment, non-attachment —the skills you acquire and cultivate in meditation and the skills you need to thrive in trading are one and the same.

And when a loss occurs inevitably, instead of automatically thinking of it as a bad thing, try to feel the energy of the loss in your body without generating additional stories and meaning. Just feel that energy, stay with it fully and try to notice when it passes away naturally, on its own.

Suspending automatic interpretation gives space for unexpected alternative meanings to emerge. That opens new possibilities for wholesome action, in essence, alternative responses to habitual situations and feelings.

This means you can undo patterns of feeling and behavior that don’t serve you well.

For instance,

If a loss happens as a result of following your plan: let this be akin to the muscular pain you’d feel when you go to the gym. Learn to appreciate it as a positive. It’s good pain. It’s necessary pain.

If a loss happens as a result of NOT following your plan: then learn to let the pain go naturally. When you learn to let things happen without exerting any pressure; when you find it possible to experience all emotions as vivid, non-conceptual energy without generating any stories, you are essentially freed from compulsion. And then you can redirect your attention to your plan.

Final words…

Mindful awareness is a state of complete acceptance of whatever is arising and passing and depends on opened perception and habitual categorization suppresses that. The supposed meaning of a situation blocks your view of it. You see only interpretations, not the full complexity, variability, and diversity of reality.

Mindful awareness recognizes, not rejects, the fact that the journey of living is composed of all sorts of arising and passing conditions, and it accepts them all fully as they are, with the understanding of their impermanence. And there’s real freedom to be found in it.

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I've been trading for a living since 2006. By merging mindfulness (an in-depth study of the mind and its tendencies in the present moment), a good trading process, and an efficient business practice, I went from being a losing trader to a consistently profitable one. Through my work here at Trading Composure, I aim at helping you do the same.
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