Help! I’m scared to trade after losing money! (5-Step Solution)
Are you scared to trade after losing money?
Most traders suffer from this at some point — so in today’s trading psychology lesson, I’ll show you a proven 5-step process to help you overcome this problem (and make trading fun again!).
I received this question via email last week…
“Joe, my biggest mental mistake is not taking action on good trades that I know I should be taking. I see the trade coming, but I hesitate and skip the trade, which usually goes in my favor and I hate myself for not taking it. Then I see a similar trade later in the day, and of course I take that trade, it fails, and I lose money ending the day in the red!…
Now I’m trigger-shy, I’m scared to trade again. My wife’s telling me to give up on this crap, that I’m wasting time and money, but I don’t want to give up on my dream of full-time trading…
How do I get over this fear of losing money while I’m Trading?
Being scared of losing money while you’re trading is one of the most common problems we almost all face as Traders at some point in our trading career, right?
Not to worry – I’ve been in your shoes, and today I want to share 5 steps I’ve used to overcome the fear of losing money while you’re Trading…
And because I know so many of us traders suffer from this, I’ll also provide 11 pro-tips to help even the most scared Trader become (not just) confident and consistently profitable, but to actually have fun while you’re trading again! I know! Fun again! So make sure you read all the way to the end.
Why Am I Scared to Trade After Losing Money?
We’re scared to trade after losing money for two reasons:
- The fear of losses and
- The lack of confidence
Let’s go over both of these causes (quickly) because understanding why this is happening will make it easy for you to implement the solution to overcome this fear of losses…
2 Reasons We Fear Losing Money…
Reason #1: You’re Born This Way!
Most new traders fear losing money for (2) two reasons.
Loss-Averse Creatures.
First, we’re actually hardwired as human beings to avoid losses, we are known as loss averse creatures.
Our instincts are to protect things that are already ours, placing a higher value on things we already own than things we don’t.
Therefore it is actually in our instincts to want to protect the capital that we already have. right out the gate, this makes trading more difficult because it goes against our Natural Instincts of protecting what we already have.
At the same time most of us are also scarred from prior large losses.
I think we’ve all heard stories about traders losing everything while day trading. There are plenty of day trading loss stories about people who have lost everything, or maybe you have lost everything previously in the markets at some point in your life.
This is why a lot of trading psychologists will say people are “scared of losing money while trading, because they’re scarred from previous large losses.” It’s true!
These losses that we experienced early in our career result in a feeling of PTSD which triggers a fight or flight response. This can lead to emotional & physical stress. Feelings of anxiety, anger, and even physical pain (sour stomach) seem to happen the that we put on a new trade.
For these two reasons, (being hard-wired to avoid losses & having previous losing experiences) cause us to instinctively want to avoid this painful experience in the future, so we hesitate, we under Trade, we avoid trades all together, we cut our winners too short, we remove our stops and let our losses run… all to escape the pain of the potential loss.
As you can imagine, this avoidance of trading helps us avoid the pain of losses but it also prevents us from ever really learning how to trade.
To Be an Effective Trader we have to understand these powers are working against us at the beginning of our trading careers…
Ultimately we can’t remove these emotions completely, so we need to manage them and train our brains to use them differently if we’re ever going to get over the fear of losing money while trading, and becoming consistently profitable Traders.
Reason #2: You Lack Confidence.
The second root cause for being scared to trade after losing money is that we simply don’t have confidence in ourselves, or the trading strategy that we’re using.
There are many reasons why new traders lack confidence.
First is a lack of experience – new traders don’t fully understand the complexities of the markets they’re Trading. They simply haven’t been Trading long enough to see examples of strong Trends, weak Trends, reversals, runaway markets, narrow ranges, wide ranges, etc.
These complexities make Traders deep down inside know that they really don’t know what’s going on in the markets and they’re simply randomly Trading. You can lie to yourself all you want, but for most people, that lack of experience will show up (in your stomach) right before you put risk on the table.
Also New traders often have too many strategies bouncing around in their heads, never really mastering one specific setup or one specific strategy.
The old saying, a jack of all trades is a master of none is appropriate for Traders who are juggling a dozen different strategies but really don’t know what a good trade looks like.
Also – many new Traders don’t lack a strategy problem they lack a focus problem, never investing the time or being disciplined enough to build their focus muscles as I’ve talked about many times on this day trading blog.
They’re not focused while they’re Trading – constantly distracted by cell phone alerts, emails, chat rooms, social media, and their personal lives.
Lastly, another reason we lack confidence is that we haven’t learned how to mentally deal with the fear of losses that we know are hardwired into us.
There’s this little voice in our heads (that’s usually lying to us) and new Traders have a difficult time knowing the difference between when they should listen to that voice in their head or when they should ignore it altogether. (and don’t worry, i’m gonna give you a solution to this, so keep watching!)
So now hopefully you understand that the fear of loss, and being scared to trade after losing money is (for most of us) an instinctive feeling, we’re hard-wired for it, and that most of us make this even more difficult by going to too big, too soon, all while too distracted and under-prepared.
Personally, I’ve had the same problem. I lost quite a bit of money early in my trading career, which caused me to be scared of trading for a while, but I learned to overcome that fear and manage those emotions by using this 5 step process.
You know why this is happening, so here’s how to fix it!
5 Steps to Avoid Being Afraid to Trade
#1 – Learn a setup that gives you an edge
The first step in getting over the fear of losing money while Trading is to learn (and use) one single setup that gives you a statistical Edge in the market you’re Trading.
The key is to keep it simple and build confidence, not only yourself, but also in the setup you’re trading.
If you want to get over the fear of losing money while you’re Trading, the first step is to simplify your trading and focus on your very best trade setup.
This is a set-up that you know well and you know through back testing or live testing gives you a statistical Edge in the market that you’re Trading
If you don’t know what a good trade looks like. If you don’t know how to find an edge in the market, it should come as no surprise that you will be scared to trade after losing money because you simply don’t know what a good trade looks like.
#2 – Master the execution in simulation (or) small position
Once you know your favorite setup, now practice this one set up on a simulator for at least 2 weeks or use Market replay and go back off the last two weeks of trading without the benefit of hindsight.
I know, people always hate trading on Sim, but if you can’t do it in simulation how can you ever expect yourself to do it on a live Real Money Trade?
If you absolutely hate trading on Sim, try using the Micro E-Mini Contracts from NinjaTrader or try trading the Spy ETF and view the experience (and inevitable losses) as “paying for education” (an investment in your trading career).
The goal of trading in simulation or trading very small size on the micro contracts is to master the proper execution of your favorite trade setup, and most importantly, see the odds of success play out over the long-term.
Remember, the markets are relatively complex – so you want to test your strategy and your abilities over a large array of different situations. Strong Trends, weak Trends, range-bound markets, runaway markets, when you feel good, when you feel bad, when there’s economic news, Etc.
Think of an athlete for example, would Michael Phelps the greatest Olympian of all time just show up and swim his race at the Olympics? No, he practices and prepares in simulated races first, doesn’t he? That prepares him ahead of time (not just for the race itself, but for the lead up to the race and how he feels going into it).
The same goes for practicing your favorite set up in simulation (or in a very small size) it gets you ready – making sure you’re doing the little things correctly when it’s game time and there’s money on the line
#3 – Move to Live Trading with Minimum Size
If you were successful in your 2 week simulated practice Trading, now it’s time to move to live trading with one contract or whatever the minimum position size is.
If you trade Futures, like we do here at SchoolOfTrade.com, I recommend trading the Emini S&P, or the Micro E-Mini contracts. You can also trade the SPY, which is an ETF that moves almost identical to the Emini ES. Either way, that gets you some skin in the game with money on the line
The key here is to make the successful transition from trading in a simulated environment into trading in a live real money trading environment, with a focus on process not on the profits.
The position size you’re using should be so small that neither a loss (or a winner) affects your mindset and ability to keep trading. Only then, can you truly Focus on the proper execution.
As Mark Douglas always says in his book titled, Trading in the Zone, the best Traders focus on the process of trading, not the profits, because in the end the process is what earns the profits.
#4 – Increase Position on Your Favorite Setup
After at least one month of trading in small position sizes, if you’re seeing good results, Now is the time to increase your position size on this setup only.
The key here is, don’t add anything new. don’t add any new setups, don’t do anything differently keep trading the same exact way but now add a bigger position size.
In my experience, the best way to increase your position size while keeping your emotions at Bay is to increase your size by either the smallest increment possible (such as adding another EMINI ES Contract), or increase your position size to the point where you’re risking 1%, 2%, 3%, etc.
The ultimate goal here is to increase your position size slowly over time, up until the point where you’re risking 5% of your account balance every time you see this specific trade.
At this point, you have a trading setup that you trust, you’ve earned self-respect by proving to yourself over a long period of time that you can indeed execute this trade correctly without making mental mistakes, and now you should be mentally and financially prepared to max out at 5% risk per trade.
This 5% risk will stay consistent as you grow your account – and over time youll be earning more money per trade without doing ANYTHING differently.
On a side note – this is why I recommend the EMini S&P Futures contract, and why I teach it so much in my Free Quick Start Trading Course. With the Emini ES (or Micro Emini) you can begin with a very small size at first, but grow your account and earn more money without changing ANYTHING over the course of your trading career.
#5 – Add Another Proven Setup & Repeat Steps 1-4
Once you’ve achieved a decent position size in your best setup, now go back and repeat steps one through four with your second best setup, following the same process and ramping it up from there.
This is the most effective way for a new trader to begin their career, build confidence, avoid big losses, and build a diverse strategy with numerous ways to profit in the markets each day.
This process can be boiled down to these 3 steps:
- Get consistent on your best set up
- Get big on your best set up
- Add more setups to give yourself more ways to make money everyday
11 Pro Tips to avoid being scared after losing money
At this point many of you are probably thinking…
“well this all sounds great but I’ve tried this before and it didn’t work for me. Am I just doomed to be a losing Trader? Should I listen to my best friend and give up on this foolish dream?”
Like many people, I also suffered from the fear of losing money while trading when I was a rookie, so here are 11 tips to help you implement this strategy effectively.
1- Find a trading partner to hold you accountable
One of the most effective ways to learn and implement any new skill is to do it with a partner. you can share ideas, share your struggles and your Solutions and have someone to hold you accountable while you’re executing this game plan.
Just like if you were trying to lose weight or get back in shape or quit smoking, having somebody to hold you accountable and not wanting to let somebody else down is a very powerful motivating tool for us procrastinating human beings.
2- Start keeping a trading journal
I’ve talked many times on this blog about the value of a trading journal.
The key to using a trading journal is not just to track your trades (although that is important), the key is to use your trading journal to track when you are at your best and when you’re at your worst when it comes to your trading and emotions.
In my trading journal I pay close attention to times that I make mental mistakes, such as not taking a good trade when I know I should be taking it.
When I see myself making a mental mistake such as being scared of losing money and avoiding a good trade, I look for triggers and patterns in what leads up to making that mistake.
Was I distracted? Was I overtired? Am I making this mistake in specific market conditions? Specific times of the day? Days of the week? Do I have specific emotions and feelings before I traded that day? What happened?
These are the intangibles that you should be tracking in your trading journal, looking for ways Define the triggers that begin that domino effect resulting in the fear of losing money while you’re Trading.
3- Remove distractions:
As I mentioned earlier in this video, many new Traders operate in a highly distracted environment never allowing themselves to truly focus on one task in front of them.
As I’ve said many times on this blog before, focus is like a muscle; we have to build it to obtain it, and we have to use it or we lose it.
Many new Traders are distracted – on Twitter, in chat rooms, with email, with cell phones, Etc.
This “information overload” makes it impossible to focus, and very difficult to execute the plan that we’re trying to implement.
Remove distractions and challenge yourself to stay focused throughout the day. This will make it easier for you to execute with confidence when the time comes.
For me personally, one of the first things I remind myself when I get to my desk each morning is that if I don’t have focus I don’t have confidence, and without confidence, ill miss the best entries, which make it impossible to make money.
So get your mind right, clean up your trading environment, build those focus muscles. It makes the job that much easier.
4- Perfect is the enemy of profits
One thing that I’ve battled with personally is wanting to be perfect in my Trading, but I think most of us know that it’s unrealistic to expect Perfection out of anything that we do.
Try to remind yourself that small mistakes as you’re learning are not only okay but they’re encouraged.
Like when we were kids – was it effective to be upset at yourself for not learning 2+2 fast quickly? Or learning how to tie your shoes fast enough? Of course not!
It’s important that we be kind to ourselves and be understanding that mistakes are going to happen along the way. I like to remind myself to, “be firm with my overall long-term goals, but be tolerant and flexible with small mistakes along the way.”
Side note – this also goes along with self-talk.
Another way to use your Journal is to make note of any time you find yourself being extra critical about making mistakes.
No I’m not talking about taking a losing trade, I’m talking about yelling at yourself or belittling yourself for making a small mental mistake during the learning process. We treat ourselves horribly sometimes, far worse than how we’d treat another human, right?
Remember- thoughts become feelings and feelings become actions and actions become results – so pay attention to how you talk to yourself and track that in your Journal.
Don’t let the pursuit of perfection stand in the way of the profits you could be making.
5- Play the odds, think like a Casino
Have you ever been to a Las Vegas casino and they shut down the craps table because they’re losing too much money? Of course not!
Why? Because the casino knows that they may be losing money right now but as long as they keep you rolling the dice they will eventually come out on top in the end.
New Traders need to think like a casino owner. In a casino, the house has an edge, and therefore the longer you play the more likely they are to win.
In your Trading, if you truly have a setup that gives you a statistical Edge, then you are the house, and you have a statistical Edge.
If that’s the case then you need to shift your mindset, understanding that the longer you keep executing your favorite set up the Greater the odds are for your Edge to work in the long run, making you money over all.
Not every trade will work but you have to keep taking your favorite trade because you know it works in the long-term. Worry about your P & L at the end of the week, or even better, at the end of the month.
Another way to think about this is – if you truly have an Edge with your favorite setup, then you must take that next trade after a couple losses because you’re statistically “due” for a winner. So keep focused on proper execution!
6- Use a process goal, not a profit goal
One of the most common questions I get from New traders is, “what’s your daily profit goal?”
I don’t use a profit goal; I use a proper execution goal.
My goal is to never miss a good set up on any given trading day, because I know over time if I consistently execute my process correctly, I’ll make money in the long run. This takes the pressure off having to make money every day or having to find a couple trades every day.
Remember, we don’t control anything in these markets besides our decision to enter and exit a trade.
It’s a rookie mistake to place unrealistic profit goals on your own trading each day. What if the markets don’t move much that day? What if you’re sick? Overtired? What if there’s news that interrupts your Trading?
Change your daily goal from profits to process and that will not only take the emotional pressure off you to make money every day, but it also makes trading fun again, like when you first began!
7 – Remove the P&L from your trading software
I think most of us have heard this tip before, but I’ll say it again. Easy way to get over the fear of losses after you’ve lost money in trading is to stop obsessing about how much money you’re making or losing on each trade.
In most professional trading software programs, you have a choice between seeing a dollar amount, the number of ticks or points, or Nothing at All, right?
I would recommend you change your software settings so that all you see is…
- your entry point,
- where your stop loss is,
- where your targets are, and
- what your position size is.
Do the math outside of trading hours and focus on the process, not the profit and loss on each individual trade. A small change in your software can make this easier.
8 – Fight performance anxiety with visualization
Performance anxiety is something that affects most new traders, and it becomes a self-fulfilling prophecy. we lose money on a trade, we then worry about losing money on the next trade, which causes us to execute the next trade poorly, which results in more losses.
This cycle of losing money, being scared of losing money, and allowing it to affect our execution, is what fuels performance anxiety.
Just like a professional athlete, we must learn to remove the fear of making mistakes and focus on the proper execution of the specific task in front of us.
One of the most effective ways of overcoming performance anxiety is to use visualization.
Recent studies done with Olympic athletes, demonstrate the effectiveness of visualization and helping Traders overcome the fear of losing money while Trading.
What’s worked for me personally, is to begin everyday by visualizing that perfect setup that I never want to miss.
I try to visualize — What are the market conditions, what time of day is it setting up, what does the chart look like, what does the signal look like, where does my stop go, where do my targets go, what does it feel like to watch it setup trigger, the entry and hit those profit targets?
I’m visualizing myself hitting the proverbial ‘home run’ trade. The same way a baseball player visualizes himself hitting that 95mph fastball.
What does it look like? what does it feel like? what does it sound like, when you do your job correctly? Close your eyes and really visualize what makes you money in these markets.
Next comes the hard part – Now visualize how you’ll deal with a couple losses early in the day.
How do you feel after that first trade loss? How do you feel if that first trade loss is a mental mistake? How do you react? How do you prepare to get over that mental mistake or to get over that bad result on a good trade? (Because it happens!)
How are you going to rebound? Because your job is to be ready both technically and mentally for that next perfect example of the setup that you’ve identified earlier in this process.
The key here is to visualize yourself doing things perfectly, as well as overcoming the very problem that’s causing you to be scared to trade after losing money.
By vividly visualizing how you do your job correctly, but more importantly, how you get over yourself when you do it incorrectly is the key to getting past this big obstacle in your Trading.
9 – Reframe your thoughts and feelings
A highly effective technique for overcoming the fear of losing money while Trading is to reframe those feelings of fear and anxiety.
Instead of saying, “I’m scared of taking this next trade”. Say, “these strong emotions are telling me there’s something exciting coming soon. There’s an opportunity on the horizon, and I need to take advantage of this opportunity.”
The best traders in the world will tell you they are “opportunity Seekers”, rather than “loss avoiders”.
This technique of reframing your thoughts and fears as a new opportunity will help you overcome this Obstacle of being scared to trade after losing money.
I learned this technique from my brother, who has Autism, he suffers from crippling social anxiety. You know how overcomes it? He tells himself, “This scared feeling really means something exciting is about to happen, and I want to be a part of it.”
Behavioral psychologists call this emotional intelligence; that is, understanding which voices in our heads we should take seriously, and which voices we should ignore altogether.
How many times is that little voice in your head correct? Not very often! So tell that little voice in your head (moments before you pull the trigger) to quiet down, you got this!
It may come as a surprise to you, but I personally have suffered from anxiety throughout my entire life. I think a lot of hard-working, intelligent, type-A personality people suffer from anxiety and the need to have control over every situation. This is a big challenge for traders because we have zero control over the markets that we trade!
I recently read a book titled Dare, a New Way to End Anxiety (which I’ll link up in the description of this video) which gives you an interesting, modern-day take On how to deal with reframing those feelings of fear and anxiety. I hope that book helps you as much as it helped me. (and my brother).
10 – Master emotional intelligence
As I mentioned earlier, emotional intelligence is having the ability to determine which thoughts you should be taking seriously, and which thoughts should be ignored altogether.
Things like meditation, and yoga, have been proven to help slow down the pace of these random thoughts racing through our minds, and help build the mindset muscles to help us stay focused throughout the trading day.
As I mentioned earlier, most of us live and work in a highly distracted environment so carving out some time for meditation or yoga or other mindfulness practices is a wise investment in your trading career.
I do realize that spending 10 or 15 minutes focusing on your breath may seem like a waste of time for us busy people these days, but those ten minutes of meditation are just like training your mind for a marathon. Trading for 3 to 4 hours every morning is a mental marathon and we can use things like meditation to build our mental endurance.
Personally, I really enjoyed the “Take 10 Series” from Headspace.com, and I’ll leave a link in the description of the video.
11- Find an Edge in your Trading (Finally!)
In this article, I’ve outlined a 5-step solution for overcoming the fear of losing money while you’re Trading, and the very first step is to learn a setup that gives you a statistical advantage in the markets you’re Trading. (We call that finding an “Edge” in our trading).
Finding this EDGE isn’t easy when you’re a new Trader, it’s like finding a needle in a haystack.
With thousands of different markets and strategies to choose from, hundreds of technical indicators, and countless number of ways to incorporate all these moving pieces, it’s no wonder why most Traders never survive long enough to really learn what a good trade looks like and how to gain that edge they need to be successful.
Luckily, I can make the process of finding an edge a whole lot easier with my Free, Quick Start Trading Course. (ill drop a link in the upper right corner, and in the description).
No matter what your level of experience is, if your goal is to earn daily/weekly/monthly income in these markets, everything starts with finding an edge that turns the market into an ATM machine.
I created this free trading course that outlines how to determine which type of Market you’re trading (whether it’s a trending Market or range-bound Market), and where that edge exists in each of these market conditions.
If you’re serious about overcoming this fear of losing money while you’re trading, the first step is to take this free training course because you’ll learn how to find that edge, and it will give you the tools you need to execute this process I’ve outlined in this article.
And lastly – if you enjoyed this video, please remember to subscribe to our YouTube channel and hit that like button to let me know you see value in these types of videos.
Also, drop me a comment in the comment section — What was the most valuable part of this video for you? How did it help you the most?
And – are there any other topics you’d like to see me cover on this YouTube channel? Let me know in the comments sections, thanks for watching…
As always – my name is Joseph – be well out there, be nice to each other, and be here next time. Adios Amigo, bye for now!
