When we talk about trading in financial markets, tilt is something many people are terrified of. It can lead to financial losses and even cause a varying degree of depression with everything that comes with it. Neither newbie traders nor experienced ones are immune to it. So, the key question is, how do you avoid it and what to do if you have already fallen into the tilt’s trap? In this article, we will try to tackle it together.
So, what exactly is the trading tilt? This is a situation where traders lose the ability to think straight, make logical decisions, and let emotions get the upper hand. As a result, they may run into a losing streak and lose everything they earned previously. This is what getting “on tilt” essentially is.
Tilt can be compared to the affective state. Something happens, the traders step down the slippery slope and immediately slide down. By the time they come out of it, they see losses in their trading account and maybe even a stop out.
This can easily happen to both newbies and experienced traders. For instance, while being angry with the market after a losing streak, traders may wish to bounce back and get back what’s been lost. That’s when you start opening trades chaotically without having a market signal to back it up and eventually cannot stop. Or here’s another scenario: a seemingly innocent joy after a series of winning trades can make you want to open yet another position even if there is no solid entry point for it.
On the plus side, tilt makes you realize that it’s high time for you to change your trading approach and start managing risks properly. Had you used an automated risk management system, you wouldn’t have lost money. It’s that simple. However, being sure that it won’t happen to you “because you, of all people, can control yourself” is what can push you to make trades that will leave your trading account empty. That’s when you start asking yourself in despair:
«Why haven’t I connected Risk Manager, why haven’t I used emotionless software to control my risk management system and protect my money?»
Naturally, everyone hopes that they won’t face similar problems. It can happen to anyone but them. Looking at other people’s misfortunate experience with tilt, you probably think to yourself,
«How could they do that?! That’s just crazy! That could never be me!»
But the moment you start thinking this way is when you become a perfect candidate for tilt. The thing is, there is a world of difference between watching the situation unfold as a passive spectator and actually experiencing it yourself.
For example, here’s an actual real-world case to illustrate this. Trader managed to grow his trading account from $10,000 to a million within a very short period of time and then lost it all in 4 hours. Four hours! This is what emotions are capable of doing to a person.
To understand the psychology behind this better, just remember how you feel at a store after snatching up a bargain. The odds that you will purchase something else (possibly completely unplanned and unnecessary) are close to 99%. And the marketers take advantage of it when creating campaigns. Financial markets are no exception.
In most cases, trading tilt is linked to subconscious fears and biases, including:
This list goes on. What’s important is to understand which of the listed reasons apply to you before you actually get on tilt. The perfect way to do that is to catch and disarm your enemy before it can cause any damage. Use a trading log to analyze your behavior and emotions when trading. If you can’t do it on your own, seek professional help. For example, you can try FX Intensive for super traders.
We have explored the nature of tilt, figured out what it means and why it occurs. Now, let’s discuss ways to avoid it. There is only one way to shield yourself from it or get to the other side if you are already on tilt. It is only by controlling yourself and setting boundaries.
1. Decide on the allowed risk threshold. What percentage of your trading account are you willing to risk per trade? How many losing trades per day/week/month are you allowed to make? Stop trading as soon as you reach that threshold, or better yet — install Risk Manager. This solution will serve as your trusted safety lock.
2. Master self-discipline. Stick to your strategy when opening trades, create a checklist, and make sure to follow it religiously.
3. Keep a trading log. Aside from describing actual details of your trades, you can write down what emotions you felt when making them. This can help you control your own mindset and avoid slippery slopes that can lead to tilt.
4. Stay focused. This means that there should be nothing besides the market when you are trading. Stay away from trading if you are frustrated, tired, or cannot concentrate. Do something else, unwind, and return once you feel well-rested and composed.