It’s always a good idea to trade a system that has been tried and tested – one that you understand thoroughly.
And you usually develop that understanding through logical assessments and backtesting.
Now that aside, periods of losses in trading will happen no matter what you trade or how you trade. And those periods are not easy to go through as the mind loves to overthink things.
- Why is everybody else making money and I’m not?
- It’s been 5 losses in a row now; there must be something wrong with my rules.
- What if I double my position size just for this trade, I might pull myself out of it.
- I have to take my profits earlier next time. If I wait for price to hit my target, I might lose again…
If you’re anything like the typical trader, that’s the kind of conversation you usually have with yourself when you hit a string of losses – even if your system is tried and tested.
I know this because it happened to me all the time. The mind never seems to want to stop overthinking when you hit a period of losses or so-so performance. It desperately seeks solutions outside, even though the only thing to do during drawdowns is to sit and wait.
But your mind sometimes resembles a five-year-old child –it wants to have everything a certain way and it never knows how to sit still.
If you allow your mind to continuously play this trick on you without ever interjecting, it will only press on with the madness until you discover that your mind has slowly become a prison.
And in that prison, consistent profitability is unfortunately not possible.
Learning to quiet your mind and trust your system, instead of letting it get distracted by every passing fear-based thought, can allow you to have more mental clarity, and eventually, it can allow you give up the toxic habit of overthinking.
[Tweet “11 Aphorisms To Remember When You’re Overthinking Your Drawdown”]
1. Overthinking is the art of creating problems that weren’t even there.
2. Your goal is never to make permanent decisions based on temporary emotions. If you can manage not to do that, alongside a proven system (with proper risk management rules), money will take care of itself.
3. There is nothing in this world that can trouble you as much as your own thoughts.
4. Follow your proven plan and never go against it. It won’t lead you astray.
5. Luck can make you profitable without knowledge nor skills. But it’s going to be fleeting and rarely repeatable. On the other hand, a proven system with proper risk control and stability of mind will yield you a kind of profitability that is durable and predictable.
6. A quiet mind is able to hear intuition over fear.
7. Don’t take trading too seriously. Nothing ever happens the way we expect. Overthinking is a waste of time and energy. Just stick to a proven process.
8. Your reality is determined by your most dominant habits of thought. If your current thought habits are detrimental to you, simply change those habits.
9. If you trade a proven system and can create no desperate need to make money, or to be right, you’ll be surprised by how fast you’ll get to engineer consistent profitability in trading.
10. The more you trade a proven system, the luckier you’ll get.
11. Peace of mind is following your proven plan with adherence to every detail. Think about it, why would you want to do anything else?
I shared those 11 aphorisms to have you engage in some philosophical thinking regarding the uselessness of overthinking. It’s really a poison and, hopefully, you see it.
Now here are four ways to relax overthinking…
Four ways to relax overthinking
1. Make sure you are trading a proven system that you understand.
Trading with an edge simply means that you have a system that provides you with a greater chance of one thing happening over another. In no way this implies that you won’t go through losses –and yes, sometimes a few ones in a row!
If you think that consistent profitability in trading depends on the absence of losses, then there is something fundamental about this game that you haven’t understood.
Over a series of trades, your winners and losers will be distributed probabilistically. This means that you will not know when you will catch a win or a loss, but if historically your system has been proven to win 60% of the time with an average win to loss ratio of 3:1 –meaning that if your average winning trade is $310 and your average losing trade is $100, the ratio would be 3.1 — you know how this will even out in the long term.
Successful trading is a purely based on probabilities and for the trader who understands that (deeply), there is no dilemma between math and ego.
2. Keep your focus on your long-term goal.
So you’ve tested your system. You know it works. You know what it’s capable of and what it’s not capable of. With that information in mind, keep your focus on a realistic and attainable goal.
And anytime you notice you are overthinking or you feel anxiety or worry coming on, stop those thoughts in their track as soon as you realize it and gently redirect your focus on this realistic goal of yours and focus on the behavior that will get you there.
As your desired results start to shape up over time (note: I didn’t say instantly), trade after trade, your habit of overthinking will also die off.
3. Spend time doing other things
This could mean going on your lunch break in a nearby park (which I love to do) or going on a vacation to get away. Anything you can do to stay outside of that circular pattern of thinking will greatly benefit your mind and your trading performance.
When you allow yourself to do things other than trading (other than obsessing about it), you will find that you will think more clearly about trading.
4. Pick up a meditation practice
I suggest meditation a whole lot on this website, but for good reason. While the goal of meditation isn’t really to stop thinking, many people feel that their thoughts automatically slow down when they meditate.
When you meditate, you naturally calm the flow of overthinking and negative thoughts bombarding your consciousness every second of every moment and, instead, you move into a space where qualities like patience and clarity start to take precedence.
If you try it but then find you might want some guidance, check out the Trading Psychology Mastery Course.