Need to eliminate the big losses
- Thread starter SteveM
- Start date
Traders that have the "same problem" as you've describe...rarely reach the status of a long term profitable traders because eventually the poor trade management involving pulling stops, revenge trading and poor position size management takes them out of the game.
You got it right...something in your head (cognitive decision making) needs to be re-wired. Its a very difficult thing to do because we as humans aren't wired correctly for such. Its something often discussed in behavior finance.
That's why there's tons of journals here at the ET forum by those with similar like problems with their trading...almost all of them eventually had that big blowup...sometimes spectacular via a single trade blowup loss.
Oddly, many (most of them) think the problem is just tweaking their trade method or something is wrong with it when in reality...its just them (the trader)...the person in the mirror. Sadly, a trade journal will not fix the psychological problems but a trade journal can help to identify the problem but you seem to already be there...you know the problem is you and not your trade method.
In contrast, a trade journal should always be maintained and not something a person starts only when they have trade problems. Thus, profitable traders that have very little problems should still be maintaining a trade journal. Therefore, after your journal concludes here at ET...keep maintaining one privately via a professional trade journal software.
Just use a search engine to get a list of professional trade journal software. Many have a free trial and/or low monthly cost. They can't fixed the psychological aspects of a discretionary trader but they are still a valuable tool to have but eventually you'll need the quantitative statistical analysis of your trading from the professional trade journal software even if you're a discretionary trader.
I hope you can figure out what is your psychological problem involving your trade management especially when its the residual cause of the revenge trading...most can not and just spend a few months to a few years tweaking their trade method before the knockout punch hits them before they got a chance to fix the person in the mirror.
Start with ensuring you place your stop/loss and then try to figure out why you're convincing yourself its OK to move your stops to increase the possibility for a bigger loss. Without knowing you...I've seen many that move their stops...its because they have "reason" to believe when a trade moves against them...its a normal process before it turns back around and then traverses into profits.
If its a normal process...use statistics in your favor via determining how far your winners had moved against you before they turned around and went your way. You can then use those stats to place a threshold on the moving of your stops.
Also, as Scataphagos suggested...there's really no way to know when/if a trade will be that big winner or home run trade. I think his point is that we shouldn't be using stops to try to capture that big winning trade.
Stops have one goal only...to minimize losses and not the manage of profits. There's that "cognitive decision making" process or thinking...too many traders try to use stops to manage profits when in reality we should use stops to minimize losses.
Yeah, the mind needs re-wiring.
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It is interesting that "Friday losers" come up a lot when talking about controlling risk. As an example, I have read that one of Peter Brandt's rules is to never take home a loser over the weekend. I'm sure he's not the only one that uses that rule.
I'm pretty sure that was the insemination phase of human reproduction...
You are appropriately named, Mr. Bone.
I meant except you.
I'm pretty sure that was the insemination phase of human reproduction...
Trading to be successful and profitable is an incredibly complex, dynamic endeavor.
Each person and scenario and trade is truly different and unique in its collective right.
There is definitely no flat, basic answer to tell someone. There are so many ever-changing factors and variables that can impact your bottom line results. The faster you realize this, the generally better you will be off.
I believe you can't truly teach trading -- a true trader realizes it and unleashes it from within. It sounds like an underdog inspirational movie, I know.
Trading requires a wise, calm, analytical, stable, mature, open-minded person.
It doesn't matter what questions you ask, or what other people tell you -- it all can just as easily go in one ear, and out the other to an incompetent student or not ideal person/trader.
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There are many technologies that address this. The most effective ones combine a holistic approach by working with one’s emotions and body.
Taking large losses can be traumatic, which our body stores. Our body is like a giant tape recorder of the emotional landscape traversed in one’s personal life.
An example of this is to listen to some old favorite music and observe your thoughts, feelings and body sensations.
Chances are one goes back to that period in time, instead of being in the present moment.
All of one’s life experience is stored in the body - especially large losses.
The practice of meditation and quieting the mind is a simple example of tech that illuminates the spirit/mind/body connection.
Edit: There is a payofff one receives by creating large losses. Ed Seykota explores this as it applies to trading. More importantly, he outlines a process to address this so one doesn’t keep re-creating them.
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