Avoid the Trader's ‘Death Spiral’

Understanding and Breaking the Cycle

Dissipating Trading Emotions

What the heck is the “Trader‘s Death Spiral“?!

Most of us have been here and it goes something like this:

  1. You have a bad run, and your P&L is taking a hit
  2. You start to get a sense of urgency and desperation
  3. You start actively looking for trades
  4. You see patterns that aren’t really valid and then take impulsive trades
  5. These trades usually lose money and it makes you feel even worse

And the cycle often continues…increasing the emotion and intensifying the P&L damage.

One of the key contributing factors here is the lack of progress when things are going well. When you are having a good run the growth is choked, and so when you hit a losing streak it hits the equity curve harder.

As bad run and a hit to P&L are unavoidable, it happens to the best in the world, so we need to focus our efforts on number 2.

The urgency and desperation.

If you can nip things in the bud at that point, you have a fighting chance of stopping the death spiral.

So ask yourself: Why do you feel a sense of urgency and desperation after a losing streak?

  • Disappointed that you are in this position again?
  • Exasperated that you have tried almost everything and it’s not working?
  • Desire to get your equity curve back to highs again so you can feel better about your trading?

Maybe it’s one or all of those.

The thing is, whilst you might feel all of these emotions, none of those feelings are going to serve you and move you forward.

The trick is to let those negative feelings flow, but DON’T act on them. Just let them dissipate. Because if you can let those feelings dissipate you can avoid jumping right back into the markets whilst your body is still flooded with emotion…

Today, if you start to feel a sense of urgency or disappointment about your trading, don’t fight the feeling. Let it flow. Remove yourself from trading and give those feelings time to dissipate.

Once they are diluted THEN you can step back into the market with a more positive attitude and commitment to your process.

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Emotions for Better Trading Decisions

Ever heard of Denise Shull?

She’s a trading psychologist who really knows her stuff. Denise hasn’t got many interviews out there, but this one is worth a watch when you get time.