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Day trading is hard, no doubt about it. The emotional ups and downs can surprise even the most level headed of us. Winning can make us feel jubilant and secure in the knowledge that trading for a living is possible, but when we lose it can be devastating to us emotionally. Fail to maintain perspective and all hope of being a professional trader can vanish.

I’ve always wondered why the market made me feel so vulnerable when my account was down. I can remember days where I would walk out to my car and feel like something was missing, like there was a hole inside of me somewhere, or that I didn’t have what the successful others did.

For a while, I had trouble coming to terms with these fleeting feelings. I mean, no sane person should beat themselves up as hard as I was over losing a couple of bucks. After all, its only money right?

I recently stumbled into my box of old college essays, and amongst them was a paper written on the Kubler-Ross model, otherwise known as the 5 Stages of Loss. From a psychotherapeutic perspective this model can give a psychologist a framework to understand a client’s psychological state after the loss of a loved one.

As I sat there thinking about this psychological theory it made me wonder.

I take my trading account as seriously as a heart attack. Can I apply this to my trading?

As it turns out, it can be applied to all sorts of personal loss. So let’s try to understand it from the personal loss of money.

The 5 Stages of Loss are Denial, Anger, Bargaining, Depression, and Acceptance. The amount of time, order, and intensity of each of these stages will be different for everyone.

          • Denial is a defense mechanism that protects you from the intensity of your emotions. As a trader, typically this is experienced when the market is moving against you, but you refuse to change your mind about your position.

          • Anger is a way of deflecting negative feelings away from ourselves and can be semi-therapeutic but ultimately not a long term solution. Blaming is a large indicator of this stage, like blaming the person next to you for being loud, or lashing out at those who are trying to help you.

          • Bargaining, for a trader, can be the most dangerous phase. It is this stage where we seek to avoid another loss by……. getting into another trade. Sounds pretty illogical right? For instance, if price has hit our stop level and then rotates to go in our direction, we imagine that this trade is going to be huge, and it may, so we immediately look for another entry. We say things like “if only price would come back up to this level then I’m in, and I’ll catch the ride down”, all the while remaining completely unaware of what higher time frames are telling us. What most do not realize is that they are making trading decisions from an emotional context and not a rational perspective. This is why the first trade of the day is generally our most clear understanding of the market

          • Depression is the stage where negative self-talk occurs. “How can you be so stupid to trade during accumulation?” “Why the hell did you go long when everything is short?” “May as well put a gun to my head”. The sooner you can recognize this stage the better, as it is typically at this stage where account destruction occurs (ask me how I know). The best course of action is to sever your access and SHUT DOWN your computer. Better yet, take off early and hit the gym or go for a run to clear your mind and work out some aggression.

          • Acceptance. Emotional calm may be experienced if this stage is reached. This is best characterized as when, after taking a losing trade the trader can unconsciously say “oh well, there is always tomorrow”. Consistently getting to this last stage is when the unfolding of a professional career can begin. You’ll begin to hear your self say things like “I don’t quite understand what the market is doing so I’m going to stay out” and “I must be tired, I’m stopping before I take a hit”

D. If you can maintain your rational perspective while taking small losses, you will dramatically shift the probability of a long trading career into your favor. After all, 90% of trading is not actually being in the market but deciding when to get in.

So be patient, be bold, and remember that there will be another trade tomorrow.

-Andrew Moore