How do I work on my psychology when trades go against me or when I am in a drawdown?
Given the volatile and often unpredictable nature of the stock market, it is inevitable that you would get into a bind sooner or later. But what matters the most when you are in that adverse situation, is whether or not you are able to overcome your impulses and make a sound and logical decision.
Nerves can impair the decision making abilities of even the most logical of thinkers – especially when something big is at stake. Therefore, knowing how to overcome your emotions and impulses is necessary when dealing in the stock market. And quite honestly, a lot of control comes over time with experience
Seasoned traders are aware of the fact that they do not need to win all the trades and with proper risk management, they can win as little as 4 trades out of a dozen and still come out with profits. Instead of losing control and panicking, you need to trust your skills, and that trust would come from knowledge and experience.
A great strategy to follow is to record all the factors that may impact the outcome of your trades. When you look back on those records, you would be able to learn from your losses as well as your profits. Then you can avoid repeating those mistakes and do better the next time.
Psychologically, you need to document factors associated with the loss. Were you in a bad mood? Were you acting impulsively rather than methodically? With this knowledge, you would get to know yourself better and then you can optimize your behavior accordingly. Instead of wallowing in self-pity, you need to change your perspective and take that failure as a learning opportunity.
Every great trader worth his/her salt has incurred losses, but it is the will to never give up and take every loss in stride that makes him/her great.