How to Emotionally Manage Winning and Losing Trades

How to emotionally manage winning and losing trades dives into the much less discussed, mental side of the equation around trade management.

Your specific trading strategy is going to be a key determining factor in how you manage positions, but it’s your emotional state and internal dialogue, that will ultimately dictate whether or not you manage trades as your strategy suggests.

I hope you enjoy this short post written for discretionary traders.
 

How to think when you are in a losing trade

When you are in a losing trade you should be on alert.

You should be questioning every tick that goes against you. You should be comparing the completion of every new candlestick against the trade structure of when you entered the trade.

Question everything, doubt your trade, and be ready to exit if things don’t turn around quickly.

You need to recognize the only action you can take is to close the losing position out.

There is no cost averaging the position, no pleading with the markets to turn around, and most importantly, there is no hoping.

Move on to the next trade, where hopefully, your capital will be treated better.
 

How to think when you are in a winning trade

A winning trade is something you want to cherish.

You want to be optimistic, encouraging, and forgiving. The trades in the green! That means it’s doing work for you.

It’s bringing back profits to your account.

Don’t stop it. Let it work.

You should be looking at every new incoming tick as a sign of constructive progression in the direction of profits.

Exiting the position should never cross your mind. The trade has to clearly give you a reason to exit.

It needs to act poorly.

It needs to become reckless.

It needs a clear change of character.

You better have a damn good reason to exit a winning trade, and a single candlestick that doesn’t close at its highs is not good enough.

Stop being paranoid.

Stop thinking you have to lock in your profits before they’re gone because that’s what the market wants you to do. Squeeze the market and hold onto your winning positions.
 

How to emotionally manage winning and losing trades

Yes, you need to give your losing trades some room to work, and yes, you need to scale some profits out of your winning trades as they extend themselves.

Those are givens and those rules should be part of your trading plan.

But as far as your mindset goes, your internal dialogue while managing positions, that should align with the extremes laid out above.

Learn to hate your losing trades with the desire to get rid of them quickly, and learn to love your winning positions and ride them as long as they’re willing to run.

Of course, you could also go to the dark side and just automate your strategy entirely and don’t look at it too often. That won’t solve all of your trading psychology problems, but it will help insulate you from the trade by trade stress of it all. You can learn more about how we transitioned from discretionary chart trading to fully systematic here.