Updated from its original posting on 2011-08-05
We’ve all gotten our hearts broken at some point. And no, I’m not just talking about getting dumped by your high school sweetheart. The forex market also has its own way of making you cry yourself to sleep, leaving you broken and feeling helpless.
Sure, you might say that you’ve stopped binging on chocolates and that you’re already over it. But have you found yourself not pulling the trigger on a setup because it reminded you of a supposed “Trade of the Year” that didn’t go your way?
Have you recently experienced a big loss or a series of losses that dealt you a big emotional blow? Do you often get emotionally rocked by what you feel should be normal trading stress? Are you unable to break bad habits, even though you are aware of them?
If you answered “yes” to these questions, then you may be suffering from emotional trauma.
Emotional trauma usually occurs when we experience a threat to our safety and security. Although it helps us keep ourselves from repeating the same mistakes, it can also be paralyzing for a trader. It can lead to the creation of bad habits detrimental not only to our psychology, but also to our trading accounts.
So how do you prevent emotional trauma?
1. Practice sound risk management.
For traders, traumatic experiences often arise from poor risk management. Trading large positions, using ill-placed stop losses, and being overly aggressive can threaten one’s account, and therefore, one’s sense of financial security.
Getting stopped out when your stop loss was properly placed and risk-adjusted shouldn’t be traumatic because losses are inevitable. However, choosing not to use a stop and losing half
your account for it will definitely give you nightmares.
2. Prepare for the worst but plan for the best
Take pound-for-pound best boxer Manny Pacquiao, for instance. He goes through a grueling 8-week training camp for each of his fights, which includes an an unusual practice of asking his trainers to strike his muscles with a hard stick.
This drill toughens his body and prepares his mind for blows he may take come fight night. He prepares himself to take hits, but always fights to win.
It’s all about mental preparation. If you set your mind to accept hits and blows, then almost nothing will jar your focus. But remember, though we mentally prepare ourselves for the possibility of a loss, we must NEVER lose sight of and always work towards our ultimate goal – to win!
In other words, we must prepare to lose, but always trade to win.