I was speaking to a trader today who couldn't accept their daily loss limit they came to me saying they had a risk management problem but I said it's not a risk management issue it's a thinking issue.
You know what to do, your just not doing it.
Once you hit a loss you become triggered by the event either through an automatic thought, feeling or image and instead of letting it go you end up in excessive inward mode, this is the state were you overthink, over analyse, and obsess over the incident. And by staying in this mode you end up making the event even stronger and more relevant. You stay with the negative thoughts which lead to the negative consequences aka not respecting risk.
Here's how it looks...
Event > Triggered > Inward Focus > Negative Outcome
The reason you can't accept a losing day is because you can't let the thoughts go, identify with them and you stay in your own head. Instead you need to be able to detach from the trigger and learn to deal with it more healthily. In other words you need to work on changing your 'thinking' strategy.
The ideal way of dealing with it would be this...
Event > Trigger > Detach > Positive Outcome
Now let's get this straight, here is nothing wrong with this trader or anyone who deals with things like this. But what is wrong is the ''Thinking strategy'' behind it all. It's not conducive with trading.
You have beliefs about how you think
The problem is you aren't trained for this over your life you have acquired ways of thinking and beliefs about the way you think. For example you may think by going over the situation you will find a moment were you will snap out of it. But all your doing is prolonging anxiety.
Another side of this is your coping strategies. You may try using things like thought suppression by ''Not thinking' about it and try pushing it way to the back of the mind. But by doing something like this you are still actively 'engaging' with it and again this makes it stronger, more relevant and extends anxiety which all leads to self-sabotage.
When I work with traders we first have to break down why the beliefs about thinking and how there coping strategies don't work to help them trade better. Once they understand that we can move to working on how to install new methods of dealing with them.
Solve that and trading becomes 10x more easier!
So if you consciously thinking your problem is ''losing'' ''missing a trade'' or ''risk management'' that's not the root cause of the problem. It's your thinking strategy and how you deal with the initial trigger. That's the key difference in what makes a high performer vs an amateur.
It's how you think...
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About Alan
Alan Edward (aka The Divergent Trader) is an impactful speaker, author and performance coach expert. A Full Time Trader by profession. Alan is the founder and CEO of Divergent Trader a private financial firm that educates, coaches and supports traders.
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