How do you deal with losses?
- Thread starter jonny1lot
- Start date
This is a good point - I think yesterday I was confusing the two. Limitations of a method are not necessarily reflective of limitations of the trader.
usually they are
but as a rule the method is usually ahead of the trader, and trader is trying to catch with his own method, and inability to do that frustrates the trader ...
when trader does catch up he recognizes the limitations of the method and when they becoming a frustration - it's a signal for him to reassess the method
the problem is trader usually wants too much from himself and from the method
so his own wishful thinking creates a problem on its own
Why is that (rhetorical - as it for you to figure out..., and more importantly resolve)
A losing trade..., is as much a part of proper trading..., as is a winning trade
Trades work..., trades break down - through it all we must remain consistent..., and unaffected
It is
RN
Always nice to read how others handle their losses. You also just gotta be able to self-reflect/know yourself. I know that if I lose money I might get emotional and when I am emotional I never open a trade, because emotional trading makes me make irrational choices. So whenever I lose money I just say to myself, whatever I don't need it anyway and move on. It helps me not to get emotional and be able to make a next trade.
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I'm a discretionary trader so automated strategies are not for me.
I have experienced a similar issue. On winning day, I would not want to keep trading and would just shut down my trading software after just 1 trade. However, on a losing day, I would keep trying to make a winning trade and end up with a consecutive steam of losses say 3 in a row. Also, at that point even getting a win does not do me much good since I am still down for the day and if I keep trading I may even end up worse.
So I looked at my behavior, and decided if I was willing to take multiple small losses on a losing day, then I need to force myself to take multiple winning trades on good day. So for example, last 2 days I took multiple winning trades each day and actually had no losses. However, what is still an issue for these last 2 days is that I did not let my winners go for more ticks of profit. So that is what I need to still work on. I need to let the trade give me enough profit without being greedy and letting the market get to the point where it reverses to travel all the way down to take my stop out. This can be accomplished by knowing if I get in early in a trend then I should let the trade run a little more than if I get in later.
Note, when I say later I don't mean chasing but that I think for example, the market is going to break out a little, and with a standard stop I can catch the break that although I got in late I can take some profit. Chasing would be if price has for example already shot up much higher and I decide I want to just get in and hope it will go higher still. Today, after taking the 1st trade, and then seeing I left a lot on the table, I did not get mad and chase. Instead I turned off the trading software, and did something else, then I came back and was able to take another winning trade at a good location setup for my method. So the winning % proves the method is working, and I just need to employ better trade management to take more profit and lower losses.
A few ways to deal with a losing day is to set a daily stop loss that you will not go over. For example, lets say you must stop before you go over a $ 300 loss. You need to practice it. If you make a mistake and go over $ 300, you need to penalize yourself for example, give $ 100 to an organization before you trade again. Or smash yourself in the head causing psychical pain to remind yourself not to do it again. You also need to know that if you take a small loss during a losing day, you can more easily make it back on a winning day.
Next you need to determine based on your method how many setups are there going to be in a trading day. Then you need to either be willingly to take these setups or set a limit for example do no more than 4 trade during a day. However, as noted before if you are willing to take 4 losing trades, you need to be willing to take 4 winning trades. You need to be consistent in the number of trades you take on a winning or losing day.
You also need to know that some days and some months you are not going to make money. I have in the past been paid money by investors who wanted to me to trade for their accounts. I provided them with a monthly breakdown of statistics for my previous system by % of gain or loss for the month. For example, some months you may make an 8% gain, and some a 6% loss. So while your year may be profitable not every month is profitable, and you must learn to deal with that issue. Trading is more of a business, you are not an employee that makes money for working a certain number of hours even if you were working for Circuit City which was losing money and went out of business.
Any winning method will have draw downs, you need to be able to ride this out and not start revenge trading which will lead you to blow out your account. A good system allows you to both go long or go short depending on market conditions. You need to have patience to wait for a setup that you know has a higher probability of being successful and price is able to confirm this by going in the direction that you are predicting. There are many people that say now for example, the market is going to become a bear market. Eventually one of them will be right but when you are trading not investing, you don't care. You want to just know what the market is going to do in your time frame, and to ignore reading news articles suggesting a price basis since price itself will tell you what it is doing. You need to get to a point where you trust your method and can execute it real time on the right side of the chart. You should be able at the end of day by looking at the chart be able to understand what you did wrong or right and be able to see setups that you could have taken if you were patient enough to wait for them and let them hit a normal profit target based on your method or a normal stop either mental or hard based your method. The best stop is placed where you think that the market is going to prove the direction you traded was wrong and the best entry is being able to go for example long a little above that location so that you don't need a large stop.
So I looked at my behavior, and decided if I was willing to take multiple small losses on a losing day, then I need to force myself to take multiple winning trades on good day. So for example, last 2 days I took multiple winning trades each day and actually had no losses. However, what is still an issue for these last 2 days is that I did not let my winners go for more ticks of profit. So that is what I need to still work on. I need to let the trade give me enough profit without being greedy and letting the market get to the point where it reverses to travel all the way down to take my stop out. This can be accomplished by knowing if I get in early in a trend then I should let the trade run a little more than if I get in later.
Note, when I say later I don't mean chasing but that I think for example, the market is going to break out a little, and with a standard stop I can catch the break that although I got in late I can take some profit. Chasing would be if price has for example already shot up much higher and I decide I want to just get in and hope it will go higher still. Today, after taking the 1st trade, and then seeing I left a lot on the table, I did not get mad and chase. Instead I turned off the trading software, and did something else, then I came back and was able to take another winning trade at a good location setup for my method. So the winning % proves the method is working, and I just need to employ better trade management to take more profit and lower losses.
A few ways to deal with a losing day is to set a daily stop loss that you will not go over. For example, lets say you must stop before you go over a $ 300 loss. You need to practice it. If you make a mistake and go over $ 300, you need to penalize yourself for example, give $ 100 to an organization before you trade again. Or smash yourself in the head causing psychical pain to remind yourself not to do it again. You also need to know that if you take a small loss during a losing day, you can more easily make it back on a winning day.
Next you need to determine based on your method how many setups are there going to be in a trading day. Then you need to either be willingly to take these setups or set a limit for example do no more than 4 trade during a day. However, as noted before if you are willing to take 4 losing trades, you need to be willing to take 4 winning trades. You need to be consistent in the number of trades you take on a winning or losing day.
You also need to know that some days and some months you are not going to make money. I have in the past been paid money by investors who wanted to me to trade for their accounts. I provided them with a monthly breakdown of statistics for my previous system by % of gain or loss for the month. For example, some months you may make an 8% gain, and some a 6% loss. So while your year may be profitable not every month is profitable, and you must learn to deal with that issue. Trading is more of a business, you are not an employee that makes money for working a certain number of hours even if you were working for Circuit City which was losing money and went out of business.
Any winning method will have draw downs, you need to be able to ride this out and not start revenge trading which will lead you to blow out your account. A good system allows you to both go long or go short depending on market conditions. You need to have patience to wait for a setup that you know has a higher probability of being successful and price is able to confirm this by going in the direction that you are predicting. There are many people that say now for example, the market is going to become a bear market. Eventually one of them will be right but when you are trading not investing, you don't care. You want to just know what the market is going to do in your time frame, and to ignore reading news articles suggesting a price basis since price itself will tell you what it is doing. You need to get to a point where you trust your method and can execute it real time on the right side of the chart. You should be able at the end of day by looking at the chart be able to understand what you did wrong or right and be able to see setups that you could have taken if you were patient enough to wait for them and let them hit a normal profit target based on your method or a normal stop either mental or hard based your method. The best stop is placed where you think that the market is going to prove the direction you traded was wrong and the best entry is being able to go for example long a little above that location so that you don't need a large stop.