7 Trading PSYCHOLOGY & DISCIPLINE Rules To Deal With Losses (The

Winning Mindset of a Trader)

All traders have both wins and losses regardless of their strategy and system. Much like in sports traders
don’t succeed on every trade just like baseball players don’t hit every pitch and basketball players don’t
sink every basket. Trading is a game of win rate and positive expectancy through bigger wins than losses
on average. New traders are surprised at the emotions that become involved with trading real money
that was not present during system development. How you manage your psychology and discipline in
trading will determine your success even after you have a system with an edge.

Here are seven key trading psychology rules to help you manage your emotions during your losing
trades and maintain discipline.

1. Never let a losing day cost you more than your average winning day.

Your winning days should be bigger than your losing days. A key to getting and staying profitable is
keeping your losses small and not allowing them to grow out of hand and become bigger than your wins.
You can think of your risk/reward ratio in time as well as dollars and you should spend more time in your
winning trades than losing trades. A losing day should not be bigger than an average winning day if
you’re using stop losses and proper position sizing.

2. Quantify your stop loss level before you enter a trade.

You must know where you’re getting out of a trade before you ever get in. You must define the price
level where your trade should not go if the trade is correct. Once that level is reached you must accept
the loss to keep it small. Asking other people what you should do in a losing trade is a sign you have no
trading plan. Quantify your risk at the start to define your risk/reward ratio.

3. Don’t engage in revenge trading.

Revenge trading is the irrational desire to win back your losses from the same market, chart and stock
that you lost money in.

Revenge trading is commonly triggered by the ego feeling beaten by a stock and wanting to get even
with the chart by making their losses back in new profits. A trader can become obsessed with making
the money back on the same chart that they lost it on to feel a return to even for trading it. They can
feel they are better or won against an imaginary adversary or the market.

This is a big mental weakness for people that are very competitive, hate to lose, and always want to
prove they were right.

The simple solution for this is to not take any loss personally, follow a system with a diversified watchlist
and move on to the next trading opportunity. With proper position sizing and risk management each
trade should just be one of the next 100 trades and not engage the ego in battle against a chart they lost
money on.

4. Accept responsibility for your trading results.

The blame game will destroy a trader’s ability to create the right mindset for positive trading results. In
the end we chose our trading system, we did the research, we entered and exited the trades, we own
the outcome. While we don’t control the market price action we control our own actions and must
accept both the success and losses.

Blaming the market, other people, the Federal Reserve, or politicians for our losses and losing streaks
creates no constructive value to our trading. Accepting the outcome of following our strategy as our
own, in the short-term can lead to long-term success is continuing to learn and adjust to the
environment and not repeat mistakes.

We can only take responsibility for following our trading system with discipline and consistency not for
what the market does. In the long-term our positive expectancy model should play out with profits, in
the short-term anything can happen.

5. Only trade when your edge is present in the markets.