skip to main content
Trading Education Posted by Team Topstep March 18, 2021

10 Ways to Overcome the Trading Tilt

Pinball - Tilt Trading - BW

By: FairValueTrader

This article will examine a topic relevant to every trader regardless of experience and success because it is something that all traders must endure. Trading on a tilt is the most vulnerable time in one’s trading career, and now we will examine 10 Ways to Overcome the Trading Tilt to prepare you for the next time you find yourself in that position.

Digging Out of a Hole

Have you ever found yourself in a PnL hole very early on in the session, and you were determined to climb out of it? Or have you ever felt anxious late in the week after you have given away profit, and you want to ensure that you can trade back to break even? Sure, we all have, and now you know what trading on a tilt means. 

I’ve often remarked that psychology is the primary aspect of trading, being more significant to failure or success than technical methodology. Reading a chart is one thing, but adequately assessing and responding to the brain’s panic signals or gut-wrenching nervous feelings is something completely other. 

Let’s get this straight, trading is not the same as gambling. However, some traders respond to market behavior as though they are gamblers. The casino takes advantage of the client’s psychology to break them. This is why the casino will offer many perks to customers, particularly successful gamblers. 

They know that sooner or later, that client will return and have a string of bad luck and will essentially be gambling on a tilt. At that point, discipline goes out the window, and the casino makes its most money. The momentum of trading and the necessity of instantaneous decision-making are both similar to that of the casino.

Are You A Gambler Or A Trader?

Some traders have a short-term memory, and when they win, they feel like no one can outperform them. But, when they lose, they think that they are the worst. The gambling mentality begins to prey on weakness, and they want to trade impulsively to return to the winning feeling. 

I knew a trader who worked in a very professional atmosphere, and the institutional firm he worked for considered him successful. However, he had a problem that the risk manager identified; trading in the afternoon. Based on multiple years of data, when this trader was unprofitable in the morning, he ended the day at break-even only 33% of the time and finished in the black only about 15% of the time. 

Fortunately for this guy, 75% of the time, he was profitable in the morning, so his overall success was well attested. But he learned through statistical analysis that when he ended the morning unprofitable, it was better for him and his company that he spend the afternoon on the golf course. 

Poor Habits Blow Up Trading Accounts

The inability or ineffectiveness to adequately respond to tilt trading can make or break your career. You’ve all heard horror stories of blowing up an account, and if you have traded your personal money, you’ve likely experienced this yourself at some point. I assess that the overwhelming majority of the time, blowing up accounts comes from poor tilt trading habits. 

In life, we all want to negotiate from a position of strength and trade from a place of power. However, trading on a tilt represents those occasions when we are trading from a position of weakness. So, what do we do?

10 Ways To Handle Trading on the Tilt

1. Always have a plan

Having a trading plan does not take rocket science. We must all have direction, an idea of where we are going, or else we won’t know when we arrive there. You don’t have to over-plan; I realize some people are better at being spontaneous; however, “winging it” simply does not lead to long-term sustainability in trading. Long-term success is the goal. I know scores of traders who did well for 2-5 years but couldn’t last beyond that because we all suffer the tilt eventually. 

2. Know Your Limits!

So, what constitutes a plan, you might ask. In the context of this article, there is one key thing, and that is a drawdown. For every trade, you should have a drawdown parameter, usually called a stop-loss. Yes, mental stops can work if you demonstrate success at using them and modifying them. But, everyone should have a hard stop somewhere because the pain is unmanageable. 

Furthermore, this should not only apply to each trade but to daily trading capital as well. When things are not going your way, it is much easier to dig a hole more profound than correct the path and climb out of the hole. 

Some traders find it to be a good idea to have a drawdown in terms of consecutive losses. For example, I know one trade who trades 10-15 times a day, who if he loses the first three trades in the session or losses on 4 of the first 6, he will shut down his trading. There are times when he has mostly scratched these trades and is barely unprofitable. On occasion, he may lose on 4 of 6 trades but still be profitable on the day, and he still shuts it down.

Why does he do this? Because after a few trades, he believes he can assess whether or not the day is going in his direction and because it’s easier to dig the hole deeper. Furthermore, this ensures that the likelihood of blowing up an account is much less than for most other traders. Simply put, if everyone had a responsible daily drawdown for every day, week, and month, then nobody would ever blow up an account. Or, at the very least, it would take a significantly longer time. 

3. Keep Calm and Carry On

I call this one emergency disciple. Traders who are strong at planning and organization will often cover many aspects. However, I’ve never encountered a trader with a preset plan if their first trade of the day is a loser. 

This idea sounds a bit excessive, doesn’t it? But think about it, why not plan for such an occurrence? After all, every downward slide begins with the first losing trade, and from there, any of us are more vulnerable. Therefore, knowing exactly how to modify your parameters after the first losing can help you avoid things getting out of hand. 

4. Trade Familiarity

I’ve had the opportunity to assess the account statements of a few traders who have performed poorly trading on tilt. One consensus that I have found is that they each trade various markets to the extent that I determined they were a jack-of-all-trades but master of none. 

There are situations when having multiple markets to trade is extremely helpful, but trading only one or two markets will help you on the tilt. The reason is simple, the fewer markets you observe, the better you will know each of them. This sometimes includes the underlying personalities of the market that are not always tangible or easily detectable unless you’ve observed it closely and witnessed patterns. 

This is helpful because these intangibles amount to what some people call a “gut feel.” This concept may sound silly, but researchers have shown that these gut feelings come from unconscious pattern recognition. The way this helps you is that with a market you know exceptionally well, you will have a better sense of how and when to push your profits, extend limit orders, negotiate with stop-loss orders, and add to winning trades. 

Furthermore, you will know when to be more cautious, being astute when the market is tilting against you and when to wait to re-enter your trades. 

5. Automate As Much As Possible

There are times when negotiating stops and limits lead to tremendous success. However, there are also times when this practice creates a hazard. There are times I use manual stops, and other times I am more automated. I have found that when I am trading on a tilt, I must deal with emotion, and these psychological effects will result in my rationality being swayed. Therefore, I am not in the best position to negotiate stops. 

When we decide to widen a stop loss, this is often the first step to turning a bad day into a horrific one.

6. Play Dumb

To make rapid decisions, traders must have a certain confidence. However, this is undoubtedly a double-edged sword that can lead to overconfidence in the form of bias. I’ve met many successful traders, and for any of us, regardless of success, we don’t enjoy being wrong, and we are slow to admit defeat. 

The problem is that under the pressure cooker of tilt trading, sometimes we become too entrenched in our bias and maintain a direction long past the moment of clarity that the market has decided to do otherwise. Traders working out of losses will benefit from a bit of mental fresh-air and watching price to determine the next move. As one old trader used to say, trade like a mercenary; switching sides from the enemy pays more. 

7. The Golden Rule of the Tilt

I emphasize this rule because it is the go-to for many traders when they are down—adding to position size, either to the current trade or going larger on the next one. 

I’ve already stated that you should have a plan. Being on the tilt affects your rationale. Therefore, when you start changing your risk parameters by increasing your exposure, this is a sign of panic and the way catastrophes begin. 

8. Add to Winners

This one naturally works in contrast to the previous rule. I have found that when I am in a hole, the quickest and most effective way to get out of it is by adding to winners. This is something that I don’t do otherwise. 

Generally, I have a position and scale-out. However, when I’m down, I instead add to trades that are making me money. Therefore I’m increasing profit potential and can manage exposure to ensure I don’t take on additional risk. Of course, this works in specific market environments and most effective when there are momentum and trend behind the trade.

9. Keep a Diary Under the Mattress

Just kidding, but seriously, do it. Keep a journal of your trading every day, then find a way to categorize and catalog it, digitally preferred. You will have a section where you collect notes from every time you’ve been trading on the tilt and have responded positively or negatively. After a while, you can synthesize these experiences and construct trading rules in the future that cater to your strengths and individual growing edges. 

10. Keep Your Eyes on the Prize

One trader I influenced has 12 screens in his office, each with post-it notes around all four borders with various rules written down. The benefit is that you inevitably read them throughout the day, whether you intend to or not. The result is that it will subconsciously become reinforced and engrained in your thinking. If nothing else, you can look and find your guide notes not very far away when you are on tilt. 

We all must find a way out of the tilt; some of these ideas may be helpful to you as written or adapted to fit your personality. 

As always, trade well, and keep safe on the tilt!