We will explore what the main reasons are that traders hold onto losing positions and how they can help remedy these "root" causes in becoming consistent again.
PERSONAL LIFE OUT OF SYNCH
This is a common reason why trader's start to lose money and they fail to associate it with a personal disruption taking place and more on their own trading strategy. They think the market has changed dramatically from what has made them successful up to a certain point while not realizing something materially has changed at home.
I remember when I worked for a fund we had a particularly bad quarter with a lot of deals being funded that were dubious and the fund manager making the excuse that there was nothing good out there but the money needed to be deployed. Over time through after work happy hours he would tell me that things at home were deteriorating because of pressure he was feeling in having to maintain a lifestyle for his partner which she expected. This, in turn, motivated him to take on riskier deals where if they paid off would generate higher returns and thus fees for himself. That didn't happen! After a few redemptions, he told his wife about the fund's troubles and expressed to her that there may be a chance they would have to put off certain planned luxuries. And guess how she reacted? She loved him and expressed she didn't understand what he was going through and would pair back on spending in order to help him alleviate his stressors at work.
The fund as you could imagine started going back to its root strategy in finding quality deals and returns normalized again.
In telling this story when it comes to being a trader either part-time or full time, having an open communication channel with your family and important relationships will help you immensely because at the end of the day if they're your support system they will do whatever they can in order for you to succeed. Hiding losses, being aggravated, and not communicating to those that you love will see you start to take out your frustrations in the markets by trading larger or more reckless when all of it can be solved by a simple conversation.
HAVING AN EMOTIONAL CONNECTION TO A COMPANY.
There are many publicly traded companies right now where the investor (cult)ure is high. So much that you will find traders who will have the majority of their net worth in one stock because they believe in the vision that company has laid out. They tend to disregard bad quarters as a one-off blip or brush off media hit pieces as fake news trying to stop a revolution.
If anyone has followed Theranos and their fraud this is a perfect example of investors failing to see the writing on the wall and ended up losing billions after the company's valuation deteriorated over time. But what if it's your favorite stock you see going down and you cant find the power to sell?
Well, think about why you invest in a stock. Because you want to make money! If you believe in the company's mission then you can do that. But at the end of the day, if you see a stock is in a massive downtrend, the bad news keeps piling up then its time to cut and run. People always hold on to losers because they feel if they don't turn that paper loss into a realized loss it hasn't happen yet. This will see your account dwindle or see that once beloved stock trade for pennies for years where you could have taken that money and redeployed into a better investment.
If you tend to see your losses rack up in trading and you don't know why you should take a step back from the trading screens and really ask yourself in the last 30 days what was significant in my life that has changed where I feel this might be affecting my trading. You will be surprised what you come up with and be able to piece together how to fix it pretty quick.
What I suggest you do if you're experiencing these issues are :
Clear your mind daily through running and meditation as your body will react to this and your mind will be clear. Studies show that doing these two things for 30-minutes a day at least will improve your quality of life immensely.
Talk to someone about your issues and let a third party perspective tell you if they noticed a change as well so you can get a deeper insight of your root causes.
Stop trading and start paper trading until you get your groove back.
Surround yourself with those that are profitable and take baby steps in getting back into the game.