- 1997: Volume 6, No. 2 Recovering From a Loss

If you are a trader, you have experienced loss. The trick is in recovering from the loss-quicker, stronger, wiser.

The alternative is to become so frightened of future losses that it impairs your trading, creating bigger and more painful losses, or to become pessimistic and depressed, and lose confidence and hope.

Learning From Losses

Every trader has dealt with losses, whether they are trading related or not. Loss is at the heart of every painful experience in our lives, even the smallest ones. If we reflect back on all of the traumas and difficulties of our life, it becomes clear that most of these events were related to a loss. Some examples would be, losing a race at school is indeed a loss, experiencing the death of someone you know is a loss of a relationship, and experiencing an embarrassing moment in front of others is painful because it results in a loss of self-esteem and face. Even when we make choices, such as moving to a new location or changing jobs, the result is the loss of familiar faces and experiences. When these events are thrust upon us, they are even more painful.

Losses Can Be Lessons and Turning Points

There are a variety of ways that we can perceive losses. Losses can be a stepping stone to major breakthroughs. Losses can result in an awakening of who or what we really are. They can realign our values, so that we remember what is really important to us. Basically, losses can be lessons and turning points.

Although the painful experiences are always low moments in our lives at the time they occur, when we look back at some of the greatest joys and successes of our lives, often they are connected to a loss. If you look for the silver lining in a loss, in most cases you can find one.

For example, when Carrol O'Connor, who played Archie Bunker in "All in the Family," lost his adopted son to drugs, he turned his personal tragedy into a crusade against drugs. Everyone now benefits from his efforts. When John Walsh's six-year-old son was kidnapped and murdered, he left his successful career and created the television show, "America's Most Wanted," which has resulted in the capture of over 400 dangerous criminals. When "Superman," Christopher Reeves, lost the use of his arms and legs in an accident, he campaigned for the insurance industry to provide extended benefits to quadraplegics. Only time will tell what good can come from the murder of Bill Cosby's "hero," his only son, Ennis, who had overcome dyslexia to earn his graduate degree in special education from Columbia. By now, however, you are saying to yourself, "That's all very interesting, but what good can come from a loss in trading?" That's an excellent question, which comes with an equally excellent answer. When I've interviewed some of the best traders in the world, I always ask them about the roots of their great success. Nearly always, they say that a big loss caused them to make the transition from being a mediocre trader to doing what it takes to become a great trader.

Patterns of behavior continue indefinitely unless they are interrupted. What it takes to interrupt a pattern is often something that gets our attention. For a trader, nothing gets his or her attention as completely as a major loss. If the pattern of expected trading performance is interrupted by a major loss, the trader has three positive options.

The first option is to look at your present methodology and make the decision to make some changes. In this scenario loss is then perceived as a lesson, an opportunity to improve.

The second option is to treat losses as an important or necessary step in the achievement of your goals. For traders, this mindset would have you responding to a loss by saying to yourself, "This loss is one more step toward getting the best possible overall outcome. Losses must happen on the way to gains. Therefore, this loss brings me one step closer to my next gain." This is particularly true for salesmen who know that they will receive a certain number of "no's" before they get a "yes."

The third option is to perceive that loss as proof that the negative thinking behind it is the cause, i.e., "trading is too difficult for me," or "it's hopeless," or "my system is no good," or "my life is all about failure and loss." Observing this could lead to a different choice and, therefore, a new positive direction.

The alternative is that losses can also mean, for some traders: retreating, submission to being a victim, or just plain giving up.

The Trader Who Loved and Lost, and Lost Again

For a very long time, Stu was unhappy in his marriage. Stu's wife, Alma, was an entrepreneur who started up one business after another, only to leave them for another project when things did not pay off immediately. Unfortunately, she aligned herself with highly questionable or inexperienced people. She got involved with "get-rich-quick" schemes, and she borrowed from people without paying them back. Stu, who loved Alma deeply, was always there to pick up the pieces. Eventually, Alma began using Stu's name to guarantee her deals and his business checking account to cover her losses. Then, one day, after 10 years of marriage, Stu came home to find both his home and his savings account empty. Alma had moved on.

What happened then to Stu's trading life is typical of what happens to traders when they experience a great loss in their personal life. Once a steady, successful trader, Stu began to experience a cascade of losses in his trading. Because of the inner stress that Stu was dealing with, he was not able to put together the two events in his mind. One reason was that Alma's pipe dreams of great success had become, for Stu, the basis for his sense of security and support. Stu failed to realize that he had created his own basis of support through his resources and skills. With Alma gone, Stu felt as though the bottom of his world have given way, and his new insecurity made him question everything that he did. Instead of the confidence with which he had once traded, Stu now questioned his signals and his decisions. The result was the creation of ever-increasing losses.

Creating Anchors

When a major loss takes place in our lives, we tend to associate certain parts of the experience with the particular loss, and by extension, to all losses. These associations become anchors which are unconsciously tied to that experience. These anchors, when they recur in our lives, shoot us back immediately to the feelings and thoughts associated with the original experience. For example, when Patrick was a child, his father worked for a company that moved him on a regular basis. By the time Patrick had finally fit into his new school, made new friends, and started feeling successful in his new life, his entire world would come apart. It was time to move again. He lost everything he had worked hard to gain. The anchor for loss for Patrick was success and stability. As a trader, whenever his trading had reached a high, stable level of profit, Patrick became uncomfortable. Without knowing why on a conscious level, Patrick was waiting to lose it all. His unconscious mind would then complete the pattern by creating the losses he was expecting.

Anchors Away

If every painful loss we have ever had in our lives has its own anchors, we will soon be weighted down by negative anchors like Jacob Marley in "A Christmas Carol" who was eternally condemned to drag around the ill-doings of his life. Nearly everything will remind us of losses and the painful feelings associated with them. Once those feelings take hold, we are in a state to create losses. What we must do is disconnect our current anchors from their old associations. But how can we do that?

First, you have to be aware of the things which you now associate with loss. If you think about it, you will be able to uncover these anchors-they are the sights, the sounds, the things, the words, the smells which bring you down, which make you sad, which make you uncomfortable and you have no rational reason for these feelings. Another way to uncover them is to recreate in your mind's eye the losses that are painful to you and note the particular details that stand out for you. Which ones seem to represent the experience to you?

The next step is to uncouple these anchors so that they are not creating the feelings of loss each time you encounter them. This can be done by replacing these anchors with new associations. For example, if you associate December with losing money because you once lost a great deal of money in December and you find yourself repeating losses at that time of the year, you need to unlink that association. Close your eyes and imagine the most rewarding trade you can think of, one which will create a high charge of emotion in you. Now, imagine that trade taking place in December. For this process to work, you must imagine it vividly and the emotional charge must be very high. The more you repeat the process, the more effective this process will be for you.

The last step is to replace old negative anchors with new, positive ones. Think back to a time when something really inspired or motivated you-the trading book you read, the trader you mentored, the big lesson you learned-until you experience sensations that feel good. Then you give a one-word description that describes that feeling or emotion. Repetition is important to setting strong anchors, so that only your word description is enough to bring on the desired state.

Now that you have begun to uncouple your old loss anchors, you will need to have a strategy for dealing with future losses that will allow you to use the loss as an opportunity to expand or grow rather than having the loss deplete you of your resources and strength. The fact that the loss occurred will not change. It happened, and there is no way to undo it. What will change will be your reaction to it. If you think of the loss as a connection with energy, you will realize that the greater the loss, the more powerful the energy that is generated. That energy has to be directed somewhere. Where will you direct that energy? Toward more losses or toward your well-being?

Where Are You Going To Put Your Focus

If you expect to find a disaster, you will. If you look for an opportunity, you will find it as well. Your brain will focus on what you are interested in, what you value, and what you expect to happen. There is a famous experiment in psychology in which a cat's brain is hooked up to electrodes that register input from the cat's ear to his brain. A rhythmic beeping sound was then played which registered on the instruments as it occurred. The cat was clearly hearing the beeping sound. Then, they placed a mouse in a cage next to the cat. Although the beeping sound continued to play as before, it no longer registered on the instrument. The cat was no longer aware of the beeping sound. Clearly, his brain was occupied with more important matters. His focus was on the mouse.

Conclusion

This same principle of focus applies to our own neurology. If you focus on something, it will become your reality, crowding out the other realities around you. If your focus is on positive outcomes, you will have the intellectual and emotional energy to reach them. If your focus is on losses, you will direct your energies there. The tragic losses that befell Carrol O'Connor and Christopher Reeves released a tremendous amount of energy which these men focused on positive outcomes. And Bill Cosby is directing his energy toward making people laugh. When the energy from a tragic loss is used for positive change or positive outcomes, it can be used for healing from the loss. When that same energy is directed inwardly toward depression and pessimism, healing from the loss will not take place. Instead, that energy will persist, creating ever more losses.