How do you handle big draw-downs the next day?

B

Bolimomo

How do you get back to a horse once you fell off from it?

Let's say you are making a living trading and on average take in $1000 a day fairly consistently. Then on some of these days you have sudden draw downs. May be a loss of $4000 for the day. It seems that on that day, no matter what you do you just can't do it right. Everything you touch turned into crap instead of gold. So you swallow it hard and take the losses home.

The following trading day, what do you do?

1) Shake off the previous day's experience. Treat it as if nothing had happened. It's just part of doing business. Trade exactly the same way following your methods which seem to work for you in the long run and bet exactly the same size?

2) Bet heavier to get back the lost ground. You lost big yesterday. But the market had shown you the real direction. You should correct the course. e.g. If you shorted and lost heavily yesterday, perhaps you should consider longing it with a higher wager to make it back quickly?

3) Be very cautious today. Reduce the bet size by half or 3/4. Slowly go at it. Your goal today is to not lose. Then you proceed to aiming for a $200/day the next day. And then $400/day the next day. Then back on your track to your regular goal?
 
Kull is right, you need to bone up on your mathematics.

Trading is all about managing risk, and you need better risk managment protocols in place that tell you when you have to stop trading for the day.

From your description it also sounds like you are doing highly descritionary trading, which is a reall no-no if you actually want to succeed at the game.
 
The dude is asking a question about trading psychology, not trading science. OP, been down the road you're talking about more times than I care to admit. We've <b>ALL</b> been down it. The first thing you gotta do is stop the bleeding. Trading smaller size on the following day and then increase your size back to your normal level once you get your equity curve to turn. Kull is spot on about mathematics and game theory but neither of those two know what's going on inside your head. You gotta fix yourself first and the only way you can do that is to stop the red numbers first. Turn the P/L back up slowly then get back on that horse because Kull is right. If you got an edge you didn't lose it just cause you got spanked and in the long run the law of large numbers is on your side.

Quote from Kull:

you don't freakin know what you are doing

you need to study laws of mathematics and game theory
More...
 
if my winning days are 1000 bucks there is no way i would have draw downs of 4000 ... ur bleeding money.. are u using a stop? many traders when they start over trade cap their winners and let their losers run.. thats what it sounds like. my advice is cap the losers let the winners run and maybe trade slower and higher timeframes.

ill trade up to maybe 5-6 times a day at the most just cause my trades take a while on average about 3-4 trades a day my loses are around .22% of my portfolio and my winners tend to average .6% gain. ive only had 2 down days this year and my biggest draw down of those two days was .1% of my portfolio.
 
Quote from Bolimomo:

How do you get back to a horse once you fell off from it?

Let's say you are making a living trading and on average take in $1000 a day fairly consistently. Then on some of these days you have sudden draw downs. May be a loss of $4000 for the day. It seems that on that day, no matter what you do you just can't do it right. Everything you touch turned into crap instead of gold. So you swallow it hard and take the losses home.

The following trading day, what do you do?

1) Shake off the previous day's experience. Treat it as if nothing had happened. It's just part of doing business. Trade exactly the same way following your methods which seem to work for you in the long run and bet exactly the same size?

2) Bet heavier to get back the lost ground. You lost big yesterday. But the market had shown you the real direction. You should correct the course. e.g. If you shorted and lost heavily yesterday, perhaps you should consider longing it with a higher wager to make it back quickly?

3) Be very cautious today. Reduce the bet size by half or 3/4. Slowly go at it. Your goal today is to not lose. Then you proceed to aiming for a $200/day the next day. And then $400/day the next day. Then back on your track to your regular goal?
More...

It all depends on how what happened fits into your worldview. Sometimes people lose money because their assumptions are wrong and sometimes it is because they failed to follow their own rules.
 
Quote from Bolimomo:

How do you get back to a horse once you fell off from it?

Let's say you are making a living trading and on average take in $1000 a day fairly consistently. Then on some of these days you have sudden draw downs. May be a loss of $4000 for the day. It seems that on that day, no matter what you do you just can't do it right. Everything you touch turned into crap instead of gold. So you swallow it hard and take the losses home.

The following trading day, what do you do?

1) Shake off the previous day's experience. Treat it as if nothing had happened. It's just part of doing business. Trade exactly the same way following your methods which seem to work for you in the long run and bet exactly the same size?

2) Bet heavier to get back the lost ground. You lost big yesterday. But the market had shown you the real direction. You should correct the course. e.g. If you shorted and lost heavily yesterday, perhaps you should consider longing it with a higher wager to make it back quickly?

3) Be very cautious today. Reduce the bet size by half or 3/4. Slowly go at it. Your goal today is to not lose. Then you proceed to aiming for a $200/day the next day. And then $400/day the next day. Then back on your track to your regular goal?
More...

Exactly the reason people develop systems. It's not just to have an idea where the market is headed, but it is a "system" designed to keep you disciplined. If you were trading a "system" you knew worked, the days when you lose keep you going b/c you know your best days are ahead.

In this scenario, it sounds like this person doesn't have a system, and is a discretionary trader, aka : a losing trader. And I'm not talking about going out and buying one, but the essence of having a system is just as much about keeping oneself "disciplined."

If you expect to win all the time, you're not disciplined. You won't ever win all the time, but just saying that you understand that won't stop you from letting a loss bankrupt you, and that's really what kills a trader more than the trades he was making.
 
Quote from Bolimomo:

How do you get back to a horse once you fell off from it?

Let's say you are making a living trading and on average take in $1000 a day fairly consistently. Then on some of these days you have sudden draw downs. May be a loss of $4000 for the day. It seems that on that day, no matter what you do you just can't do it right. Everything you touch turned into crap instead of gold. So you swallow it hard and take the losses home.

The following trading day, what do you do?

1) Shake off the previous day's experience. Treat it as if nothing had happened. It's just part of doing business. Trade exactly the same way following your methods which seem to work for you in the long run and bet exactly the same size?

2) Bet heavier to get back the lost ground. You lost big yesterday. But the market had shown you the real direction. You should correct the course. e.g. If you shorted and lost heavily yesterday, perhaps you should consider longing it with a higher wager to make it back quickly?

3) Be very cautious today. Reduce the bet size by half or 3/4. Slowly go at it. Your goal today is to not lose. Then you proceed to aiming for a $200/day the next day. And then $400/day the next day. Then back on your track to your regular goal?
More...


You trade smaller the next day. No question about that in my mind. You need to get small when losing and 'jimmy up' when things are going well.

Take a look at my journal and you will see I had some really big draw downs last month but came back to almost BE.

I know its hard to do but if you really want to be a good profitable trader you need to shake off the loss and NOT think about getting the money back. What you DO need to focus on is trading the best you can and the money will follow (assuming your have a postive edge)
 
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