Trading Psychology Consecutive Loses And The Trading Psychology Spiral

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ou go long and the market       the range immediately breaks out
immediately goes down - you     to the downside. Not only does
go short and the market         this give you consecutive loser
immediately goes up. That's 2         4, but the loss occurred from
consecutive losses, and you are       trading against one of your
getting a little 'anxious' so you     ‘best’ method trade setups, and
don't take the 'next' trade. Of       becomes a trade which is giving
course, this trade is a winner.       enough profit to pay for the
Now to make the situation worse,      previous 3 losers, and make you
you then 'chase' the move, and as     net ahead.
soon as you enter the trade it
immediately reverses, thus giving     Now what are you supposed to do –
you another loss – this is now 3      QUIT? AND to be sure that there
in a row. Ok one more ‘try’ -         is no more temptation – your
this can't happen on every trade      throw your computer out the
can it?                               window, and dive out right behind
                                      it. You are in a trading
This time though, you will be         psychology spiral.
real clever. You have noticed
that the market is in a range,        WHAT is a Trading Psychology
and it's the bounce from the          Spiral?
low/retrace from the high that is
causing all the problems. So this     I think of a trading psychology
time, the next trade you take         spiral as the transition from
will be a range extreme fade AND      trading losses that you have
the hell with your trading            accepted both as a part of your
method. The market is at the          trading method, and as something
range low, and per your new ‘on       that is inevitable in trading,
the fly’ trading plan, you go         into a surge of emotions that
long. Instead of bouncing again,      continually builds to a point

where you can no longer accept        their emotions spiral. A series
anything. As this eventually          of consecutive losing trades,
‘spirals’ out of control –            especially those caused by
trading method becomes completely     deviating from the trading plan,
ignored, and is then replaced by      are a root cause for this
emotional responses and decisions     happening.
for everything that is done. Even
if quitting was really the only       This also isn’t about something
viable thing to do at the time,       that happens only to
the trading psychology spiral can     inexperienced and unprofitable
cause an emotional response where     traders. There are going to be
this isn’t even considered, until     those times where nothing a
the situation becomes so              trader does will work, and that
desperate, that the trader can’t      result is going to be a series of
take it any longer AND does have      consecutive losers. So the
to quit.                              situation is the same, it’s the
                                      reaction that may be different.
This isn’t a discussion about         For instance, traderA may go into
emotions and trading, and the         a panic causing them to spiral
various fears and issues that         out of control, losing all
keeps a trader from trading to        self-confidence and self-trust,
begin with; as we know, emotions      and ultimately more money than
are an inherent part of trading –     was intended. On the other hand,
you learn to control them OR you      traderB may go into a period of
can’t trade. This is a discussion     revenge trading, coupled with an
about emotions that are typically     increase of their trading size,
controlled well enough so that        as they are ‘sure’ that each next
you ‘can’ trade, but then             trade is going to bring them back
something happens where the           to even. Also, a spiral out of
trader loses that control, and        control, and the losses continue

– AND also a loss of more money       Do this, and get your trading
than was intended. WHAT does          back on track, and you will have
traderC do?                           made gains the value of which you
                                      can't imagine, as you will know
Controlling The Trading               that you may have losing periods
Psychology Spiral                     BUT you can trust yourself to
                                      remain in control, and not
Consider: each time a tpsych          magnify the damage.
spiral occurs AND you go out of
control - the quicker the next        In light of this, take what you
spiral is going to occur, and the     believe to be your key trading
faster you will go out of control     issues, write them on an index
when it happens. This is going to     card, and stick them on to your
continue, until trading becomes       monitor. The objective is
too painful, and you will not be      realization and awareness, thus
willing to trade any longer.          making these issues available to
                                      your conscious as a reminder,
Consider: it is better to work        instead of only available to your
through the emotions instead of       subconscious as a problem. As you
quitting. Quitting is too easy,       make your notes BE SURE that you
and this provides no solution or      are writing short non-judgmental
aid in preventing this from           notes - DON'T let the 'solution'
coming back and intensifying each     make the 'problem' worse.
time you have a rough period. As
well, you have lost the ability       For instance, consider the
to 'count' on yourself when you       combination of a build of
need to do so the most. To            emotions coming from consecutive
control a tpsych spiral, before       losses which are also occurring
you go out of control, is a           during congestion - write notes
tremendous win in and of itself.      similar to these on your card:

                                      Remain Neutral
- a build in emotions may come
from a series of quick                Remain neutral - another note for
consecutive losses                    your index cards.
- quick consecutive losses often
come from trading inside of           Another approach may be to write
congestion                            notes that include the things you
- are your losses 'base'              can remember yourself doing or
congestion method trades OR are       feeling as you transition from
you overtrading                       acceptable emotion to tpsych
- there is nothing wrong with         spiraling, for instance:
'base' method trade loses             shortness of breath - sweating -
- your trading results are fine       squirming in your chair - unable
when you 'base' method trade          to sit down. AND as the spiraling
                                      becomes more intense: cussing -
Now consider the same situation       screaming - throwing things -
BUT different notes:                  breaking things. UNTIL the
                                      spiraling is out of control:
- don't be a stupid idiot and         panic - desperation. Clearly,
overtrade congestion like you         there is a whole list of physical
always do                             responses to uncomfortable
- you are going to lose your ass      emotional situations; realizing
and end up with another losing        them as they occur may be a step
day like usual                        in controlling them before they
- you do this same crap every day     ‘take-over’ and lead to
and the same thing happens            spiraling.
- you have no reason to even
trade if this is all that you are     Be Aware
going to do
                                      I want to know the potential for

the spiraling situation. It is        tpsych.
VERY important to acknowledge
that you have emotions, and not       WHAT does traderC do?
try to ignore them or hide from
them as a solution to the problem     TraderC is the trader who remains
OR because you perceive them to       the most neutral in winning and
be a sign of weakness. This           losing - the most neutral in all
actually will just make the           situations. It's this neutrality
situation worse. You are human -      that becomes essential in keeping
humans have emotions - emotions       the emotions from becoming a
become more intense in more           trading psychology spiral, as the
difficult situations. So, I don't     trader can 'accurately' evaluate
need to know how I am going to        their losses in terms of method.
have responded as I go out of         This trader will only trade their
control. I do need to know, and       most 'base' method setups after
have something to remember,           any difficult period AND IF these
and/or think about, that can keep     lose, so be it, that possibility
this from happening - that can        has already been accepted. With
keep me as neutral as possible,       this attitude they are able to
in what would be the more             continually take their next
difficult trading periods –           method trade; they know it
something that will 'push' me         probably will be a winning trade.
back to tmethod AND 'away' from

About the Author:

Barry Lutz has been trading, as well as teaching others to trade since 1997, through his firm Tactical Trading, LLC., http://www.tactrade.com. He also writes a daily trading teaching lesson called the Trade Journal, which includes resources and discussions on trading psychology and trading method at The Tactical Trader, http://www.tactrading.com.