It is very unlikely that a medication is going to help you feel better about a trading loss. There is no simple fix to the emotional problem of losses. No one likes to lose money, and a loss can be very painful. But, being able to take losses is also a part of the trader’s job description. One of our tasks as traders is to take losses as a routine function of the trading role.

To help make losses more of a routine event rather than an event that throws us into emotional turmoil, here are three key tips to help you better handle losses:

1. Have a trading edge. Define your setups well and be sure they have an edge. By an edge I mean that these setups have a certain probability of winning over a large number of trades. In other words, based on your experience or historical testing, your trade setup should possess a positive expectancy that over, say, 100 trades some percentage (e.g., 67%) will be winners and produce a sufficient profit over loss to make the trade worthwhile. If you don’t have a trading edge, you are likely trading random patterns and you are likely to have many, many losses.

2. Know the probabilities of your edge and think in terms of these probabilities. No trade setup works 100 percent of the time. If, for example, your edge has a 67% win rate, then you know that it also has a 33% loss rate. One out of every three trades is expected to be a loser. Knowing this gives you some psychological cover. When you do have a loss, it isn’t the ‘end of the world’ for you. It is simply an expected outcome of your edge.

3. Keep your risk well within levels you can tolerate. Keep in mind that psychologically, we amplify the experience of a loss. Numerous studies show that we tend to psychologically experience a loss at about 2.5 times the magnitude of a win of a similar size. In other words, if we have a winning trade of  Rs10000, we feel good. If we lose $1,000, however, it feels like we’ve lost Rs250000. It is important, therefore, to limit risk to not only to what your account size can bare, but also what your personal psychology can handle.