Need to eliminate the big losses

SteveM

SteveM

I've been trading for a while now, and on 7 out of 10 weeks I can finish the week profitably. One major problem that I have, however, is that I will occasionally take real big losses that wipe out many previous winners.

For example, on Friday I foolishly did not exit a losing position, only to take an even bigger loss today that wiped out my prior 6 weeks worth of profits.

While I continue to become a better discretionary trader (number of profitable trades continues to increase over time), these occasional big losing trades that wipe out many winners continues to negatively affect my performance (both capital and mentally) ever since I started, and it has gotten to the point now where my p/l is breakeven over the last 3 months, and I am questioning if I really will be able to be successful doing this long term.

How does this happen? Pulling stops, revenge trading using too big position size, not using stops, etc.

If there any long-term profitable traders here who used to have the same problem, how were you able to re-wire your instincts in order to do the "right thing" and no longer take these types of losses?

If you took 100 people off the street, I believe I would be in the lower-half in the terms of self-discipline, so I fear this might be some type of issue that is impossible to overcome, whereas trading "monks" make all of the money.
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I am starting this journal today in hopes that it will keep me more accountable going forward. It is not going to be a P&L journal per-se, but rather just an update every single day as to whether I honored my stops, took reasonable small losses, behaved rationally, etc.

Thanks for reading.

(edited for grammar mistakes)
 
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Mike, it's not impossible to overcome but it is difficult for most of us. Aside from getting sick of sliding down the mountain after an arduous climb, meditation can be very beneficial as it teaches us to live in the present and not worry about the future or regret past losses and errors. Breathing exercises during the day and affirmations before trading can also help.

And there are a couple of things you have to know to the marrow of your bones:

1 The future is unknown and there is no way to control the path of price...but you can control yourself. It matters not if the prior series of trades were winners or losers.

2 Unless you do control your behavior, you are not a trader, simply a wannabe and you will fail.

Most will fail as they will not do what's necessary. Here's hoping you do....good luck.
 
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KISS whats the direction, is it against me, you've got to stop hoping it will reverse or worrying if you exit it will then reverse, need to be a pro and just exit.

Trick is only risking say 5 to make 20.


It's a hard lesson to learn, I still hold counter trend and get slapped silly, less and less, just keep practicing till you believe its the correct way to trade, despite some reversing right after.
 
Turveyd said:
KISS whats the direction, is it against me, you've got to stop hoping it will reverse or worrying if you exit it will then reverse, need to be a pro and just exit.

Trick is only risking say 5 to make 20.


It's a hard lesson to learn, I still hold counter trend and get slapped silly, less and less, just keep practicing till you believe its the correct way to trade, despite some reversing right after.
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Correct on all points!

There are only 4 outcomes of any trade...

Small gain
Small loss
Large gain
Large loss

The only one we can control is "Large loss"... that is, don't allow it to happen!
 
1) BTDT, *lost* the t-shirt in the process.

2) "...and I am questioning if I really will be able to be successful doing this long term."
That self-doubt -- that need... that *requirement* to self-evaluate and to review and to hold yourself to set, immutable standards (not so much high as *fixed* standards) should never, ever leave you. If you *ever* feel cocky as a trader (or even 'investor'), the market will come and bitch-slap that hubris right out of you. If you did everything right, the market will still tag you (painfully) on some statistically-expected rate. (Oh, Poisson! You heartless bastard!") EXPECT that. Shrug it off. But if you've violated your own rules?? (And we've allllllll done it.) Self-flagellation is a good thing.

3) "...how were you able to re-wire your instincts in order to do the "right thing" and no longer take these types of losses?"
Easy. With repetition ("sorry!"), I have learned to have two of me, one of whom trades, the other looks over my shoulder, ready to thwack the backside of my head, should I deviate from what I know to be Right&Proper Trading. It's a conversation. The red minion (with the horns and pointy tail) has his hand on the mouse; the white minion (on the other shoulder -- the one with the wings and high-pitched voice) watches everything, warning "Noooo-ooooo, Tom, don't take *that* trade! It's against your rulesssss!"

Lastly, but definitely related -- I'll bet you're trading your own account, huh. (This is what the psychologists call "projection" on my part. Cuz I trade mostly Other People's Money, and the thought of having to get on the phone today, and having to say something like, "Well, I screwed up and....." and then they would say [JUST like that whitey-robed minion with the high voice], "But Tom! You said that it's not good practice to......" and they repeat my prior words back to me. Awgh!) Working your own account, you can think of yourself as a Big Swinging Dick pretty easily. "Oh! I took this trade today...! It was so awesome.....!" Just one question: Would you take that with someone else's money? Would you take that risk WITH A CLIENT'S CAPITAL? If not, DON'T DO IT YOURSELF.

(I should print this off and post it next to my *own* monitor, for the next time I'm tempted....)
 
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Scataphagos said:
Correct on all points!

There are only 4 outcomes of any trade...

Small gain
Small loss
Large gain
Large loss

The only one we can control is "Large loss"... that is, don't allow it to happen!
More...

Nice way of putting it, can't stop all Large Loss's spikes can blow through SL's, but as long as you get some Large Gains then they counteract each other and all is fine.
 
Turveyd said:
Nice way of putting it, can't stop all Large Loss's spikes can blow through SL's, but as long as you get some Large Gains then they counteract each other and all is fine.
More...

Stop orders are usually not "totally ineffective" against a shock move. A stock rarely trades @ $100 one second, the $60 the next. Even if your stop gets "blown through", likely still better than riding it all the way down.

If you're into "preserving capital while you pursue profit" (as should we all be), there is simply no good excuse for not using stops.
 
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