Strategies for Dealing with Stock Market Losses

Expert Tips for Dealing with Stock Market Losses and Minimizing Impact

I’m not afraid of storms, for I’m learning how to sail my ship…Louisa May Alcott

“I am trading poorly. I can’t get much right these days and am losing after five years of solid gains in the grains. I don’t know what is wrong with me. I have become mediocre at best and am breaking my rules. The worst part is that I keep adding to losers and taking big losses or getting margin calls. Something is wrong. I am bummed and burned out. Two years of gains are now gone. I feel like I might be dying. No need to respond; I just had to tell someone.”

That is what I found in my inbox. I responded three times, but all the emails were “undeliverable.”

If you are out there and reading this, please know that I have been where you are. This may or may not be some small comfort for you. You tell me that you feel you might be dying. What does this mean? What type of dreams are you having? What is the nature of your suicidal thoughts, if any?

It is presumptive of me to think I know what is going on to cause this suffering. I don’t know and can’t know unless you tell me. However, what you are experiencing has happened to many traders, and there seems to be a recurring pattern. Yes- it’s dangerous to generalize, and I am perhaps not doing you any justice in this way. However, your cry for help is something I have heard before, and I know that there is a way through this.

Navigating Emotional Turmoil: The Impact of Personal Experiences on Trading Behavior

I suspect you have suffered some kind of disruptive experience in your personal life. It could be the loss of a loved one or personal health crisis. Whatever it is, the serotonin and other “feel good” pathways in your brain may have shut down, sending you into an emotional state—perhaps anxiety or depression.

Alternatively—but less likely– it could be a positive experience (like falling in love) that set your brain’s dopamine pathways on fire and sent you into a kind of head spin.

Something happens in your personal life.

Let’s stay with the first scenario: A painful personal loss, possibly a traumatic situation to which you responded with deep sadness, abandonment, rejection, confusion or fear. Maybe all of these.

Instead of working through this, you continued to trade and act on your emotional crisis in the markets.

As a result, you began to break a cardinal rule of trading and one that you know very well: Never add to a losing position. You lost your centre and grounding as a trader and are now in a downward emotional spiral. I don’t know how this started. In other words, what came first—the emotional breakdown or the trading error? If you are like the majority of traders, this is the sequence:

Emotional Turmoil and Trading: The Interplay of Personal Challenges and Losses

You think you are “OK” and maybe can get through it by doing what you know you do best—trading. In other words, rather than taking time to process and work through the situation, you continue to trade as if nothing was different.

Things were different. YOU were different, and you started to make trading errors, explicitly adding to losing positions.

As a result of these errors, your losses began to grow. You then became more depressed, less grounded and increasingly off-centre. Now, your trading losses are taking centre stage. You cannot see clearly what you are doing because you have double trouble. Your emotional state— disrupted, to begin with—is becoming more fragile because of the losses you are taking. Your sense of self-worth is diminishing as the losses mount. You are becoming increasingly sick and punishing yourself by losing more.

Now you are in an accretive and vicious cycle where trading errors are producing losses, causing you to become more emotionally unstable and thus making more trading errors.

You are now so off balance–feeling like you are dying. You see your equity disappearing. Two years of solid gains are gone. That is a really big deal for you. It is for anyone. It is a pain that sears so deeply that you feel you are melting away.

What can you do?

-Reach out for help. You are trying because you wrote to me. This is a great beginning. I suspect you are getting help from someone, but I am not sure.
-Allow yourself to experience all feelings without fighting them or pushing them down.
-Stop trading.
-If you cannot stop trading, trade smaller sizes and less frequently.
-Go back to basics with your trading. Understand that you are not your position in the markets. You self-worth does not depend on if you lose or win.
-Remember many years ago when you first started to trade and what it felt like. Visualize how it feels to win again, to control your own execution.

From Loss to Growth: Taking Control of Your Trading Journey

Remember this losing feeling so that you learn from it. Deeply “get” this one critical point about any trade:
What got you into the trade is now an illusion. It is not absolute and may not ever have been accurate. The only thing that is real is your money at risk in a fluctuating market with the flow of orders. If you are losing, you are on the wrong side of the order flow. Everything that went before that is history. Find a way to get out. Holding, hoping, praying, wishing, dreaming and denying are signposts on the road to ruin.

You will recover from this and grow stronger as a result of it. Life and trading are never about what happens to you. They are about how you respond and take action in the face of what is in front of you. The way to stay in a calm, centred place where you control the execution of your trades is to abandon all attachments to the outcome. Trade what is, not what you hope or dream. Live what is. Now is the perfect moment and you are always in it.

Every situation, properly perceived, becomes an opportunity to heal… A Course in Miracles

Biography

Janice Dorn, M.D., PhD, received a PhD in Anatomy (Neuroanatomy) from the Albert Einstein College of Medicine in New York. She is certified by the American Board of Psychiatry and Neurology and the American Board of Addiction Medicine. Dr Janice Dorn has written over 1,000 articles on trading psychology and behavioural finance. Dr Dorn was dedicated to providing education and training about how the brain, psychology and emotions impact financial decision-making. Janice advocates for the elderly, a lifelong dancer and a pianist.