I introduced a recurring segment in the blog back in September called “Your Pitfall – I Spitball”, where I dissect and hypothesize reader-submitted concerns to help you better analyze yours.

Let’s jump into this month’s scenarios, which are tied to the issue of hating to lose – a problem that’s rarely just about losing, but about how your severe reaction to losing ends up costing you more.

“It is quite common that after 2-3 profitable trades, a losing trade and the market starts moving sideways, I can’t walk away, and try to trade further, and usually end up with a big loss. In retrospect, it is understandable that the market movement is not tradable, but I can’t get away from the computer in time.”

The first question to ask here is what emotion is paralyzing this trader. Since they didn’t list it I wonder if they’re aware, or if they’re just aware of the consequences. I also wonder if they lack the real-time skill to recognize whether market conditions aren’t right – that’s easy after the fact, but is it beforehand? Or do they have that skill, but the emotion impairs judgment so much that they just care about making up for the loss?

We don’t have a lot of information about what is happening, but here are a few things that I suspect.  First, hating to lose may not be the most consequential part of the problem – they might have difficulty walking away from trading in general, whether winning or losing – an action junkie who loves the intensity of the markets and regularly gets too swept up to pull themselves away.

This isn’t the worst problem to have if they put firm risk management controls in place about the number of trades/day, or a daily loss-limit, and the market provides plenty of opportunities. On profitable days they may take more losses than ideal and might force trades with lower probability, but the sum total is not that costly.  But when the market stops providing opportunity and that intensity overrides their ability to be in control on days like the one described above, losses mount.

It’s also possible that losing is the most consequential element. Perhaps this trader expects to win, or gets too attached to their high water mark of the day, not wanting to ever drop below it. Maybe they want control over their daily results, and losing at a time when the market is slow triggers a need to force trades and make something happen. 

Or, confidence could be too closely connected to PnL, and they hate losing after being up because they rapidly swing from feeling confident about the day to losing those good vibes.

Overconfidence, however, could also be a culprit. When they’re winning, it’s easy to become overconfident and expect the following trades to pay off. When the opposite happens, the loss causes a classic overreaction – the bubble bursts and they force trades to get a quick win and recapture that overconfident state of mind.

I’ve brainstormed a handful of reasons they’re struggling, but ultimately, they need to nail down what’s happening for them. I suggest completing a Mental Hand History (MHH) to clearly understand what’s at the core of this problem. Maybe one of my ideas nails it, and if not, I suggest using The Mental Game of Trading to come up with a clear correction to use and aggressively apply in moments when intensity, overconfidence, or anger around losing rises up and could impair execution.

The next scenario is from a trader who has already worked on their mental game, but is still struggling.

“I’m a day trader and my problem is revenge trading when I tilt. I’ve mapped out my emotions, done my mental hand history analysis and identified the root cause of my problem. I set a timeline (sub- consciously) to achieve a certain profit target which leads to flaws like expecting to make profits trading everyday. When I make a loss or two I easily tilt and start to look for revenge trades. I found out it’s because a losing trade feels like a step back or loss of time towards achieving my goal. I’ve tried a lot of different  things the past 4 months but none seems to work.”

When working my system, how well you are able to identify the root flaw is critical. This can be one of the hardest things to do on your own. If you’ve done a lot of work, and there’s a lack of progress or the problem remains unresolved, it’s likely the root cause hasn’t been nailed down yet. 

My take: This trader is expecting to profit from trading every day and is frustrated to not have made a more significant dent in their aspirations. Given the work they’ve already done, I’m going to suggest that their definition of progress is too narrow – defined by PnL – and they lack the ability, or enough skill, to qualitatively determine how they’re performing in a non-PnL way day-to-day.

One reason I suspect this is that they consider a losing trade a step backwards. Losing a trade with a good process can’t be defined as a step backward. Realistically, making money with bad process would be a step backwards – I imagine that logically they understand this, but, deep down, making money, regardless of execution quality, would be viewed as a step forward. 

Yes, money is the scoreboard in trading, but it is not reliable for measuring performance in the short-term. Think about trading like a basketball game. One trade is akin to a pass or one shot in a game. Sure it’s not fun to miss a shot or throw a bad pass, but you wouldn’t view either as a step backwards, or a loss of time. It’s just too short of a timeframe to evaluate performance. Imagine if a basketball player sought revenge after one bad shot. 

To shift out of the focus on daily PnL, this trader should instead be looking at PnL over a larger timeframe, like three to six months – this is effectively how long it can take for a trader to effectively play one basketball game.

In the near term, you need a clearer way of evaluating performance to recognize days when you’re taking losses but are still performing well, and controlling what you can control. The A-to-C-game analysis is the primary tool for this work. You can download a template of the A to C-game Analysis here. And to see an upgraded way of treating this problem vs. just what is covered in The Mental Game of Trading, you can also check out this video from a seminar I gave on this topic.

The last thing to consider here is finding the root flaw and thinking you are done. Getting to the root is a critical step but you also need to apply the correction daily to truly make a change.

Hopefully all of you have found value in this blog, and if you’d like me to spotlight one of your pitfalls, fill out this brief survey.

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