Taking a loss can be a hard thing to stomach, and will often cause you to lose confidence in your trading plan. But maintaining the discipline to see a plan through past those losses can often lead to greater returns in the long run. Psychology plays a big role.
When you’ve developed a trading plan with clear rules, you may want to succumb to the pressure to change it after each downswing. However, back and forward testing over a period of time provides better feedback than constantly changing your plan. Trusting your plan is a key part of being a successful trading.
If you find yourself doubting whether or not a trading plan is working, give it a few weeks at least before making any changes. For example, you can start a demo account and trade virtually, to see how your plan holds up given real market conditions. You can test your plan on different currency pairs, and see what holds up the best. Once you have that testing, you’ll be in a much better position to trust your plan and generate profits.
It’s also good to keep in mind the idea that you don’t need to start risking it all immediately. Start with scaled down risk, and see how things work out. If your plan involves risking 1-2% of your account per trade per day, then cut that number in half, and slowly raise your risk as you grow more confident in your plan.
Stay Calm And Stick To the Plan
Tilt is a common psychological factor when working with volatile situations. Tilt occurs when you take an unexpected loss, leaving your confidence flustered. Instead of acting on tilt, do your best to stay calm by going into the details of the loss, compare it to your expected losses and returns, and act only based on rational and objective analysis. For example, if you take a loss based on an unforeseen factor, then remember that it isn’t about winning every trade - it’s about making out in the long run.
This is where discipline comes in. It becomes much harder to properly assess the quality of your trading plan when you follow it inconsistently. Making sure that you are closely sticking to your stated metrics and rules will give you much more accurate feedback when you review your performance later on.
This discipline can also counter the panic of tilt, when you want to abandon what you’re doing and try something completely different. Don’t focus on that panis - instead, remind yourself that mistakes are natural and to be expected. If you’re sticking to your trading plan with discipline, then even your mistakes will serve as important learning moments to hone and optimize your trading plan going forward. Consistency is the key to success, and trading is no exception.
Remember that you’ll never be a professional trader overnight, but only with applied discipline and diligence to your trading plan. The more you trade, analyze, and optimize your strategy, the better your results will be in the long run.