I see it all the time – in my work with clients and in my own trading. Issues in trading are often reenactments of old emotional and behavioral patterns from outside of trading. 

For example, when you have a strong reaction to taking losses, even though you intellectually know that “taking a loss is part of trading”, and you have told yourself on an intellectual level that you “pre-accept the loss”, “its within my risk parameters”, and, “not every trade works”; the question is why do you still have such a strong reaction to a loss? 

When we overreact to a trading situation, the odds are pretty high that we are reacting to something from outside of trading – the trade is just the trigger for a deeper underlying issue.

It seems axiomatic that one’s greatest shortcomings will get triggered by the market. Our shortcomings get triggered with quite regularity, and its the better trader who can tolerate the discomfort of this experience and be able to act in their best interest as a trader.

To stop the repetitive cycle of overreaction to loss, the first step is to understand the underlying – usually subconscious – reason for the overreaction. Many traders repeatedly experience overreaction to losses, even though they “know” that losses are part of trading. You can get an edge by not succumbing to what most other traders experience all the time.