August 24, 2020
HOW TO OVERCOME A $7,000 TRADING EXPENSE
1. GO FOR A WALK (TAKE A BREAK)
I know this may sound silly, but you may need to remove yourself from the situation for a minute. Depending on your level of trading (i.e. day trader, swing trader, long-term or short-term) your break will vary in time. Some people have the ability not to get emotional about the trade and immediately make the next trade, but most new traders (whether stock, options, futures, forex, crypto, etc.) haven’t built the mental & emotional discipline to take a big loss on the chin.
I know in my trading journey it used to take days for me to get over a bad trade where I would lose a large percentage of my trade (i.e. 30, 40, some 70 percent losses) and this was with a relatively small amount. So my “breaks” would take some time to get over the bonehead move I made or decision I didn’t make to stop out. Nonetheless walking away from the trading screen helps you gather your thoughts and get away from the noise of the market. Step back to reality…world where no market exist…take a breather…then come back for more.
2. JOURNAL THE TRADE (NO MATTER HOW MUCH IT HURTS)
This is probably the hardest part, yet essential. You have to tell yourself (potentially) others what happened. What was your premise for the trade? Entry? Exit? Target price and stop out? Did you reach your target, but didn’t take profit? Did you stop out when you were supposed to? If not, why?
All these (and more) need to be answered so you can take an expense again. Just Kidding! But you will take another expense again because there is no avoiding it. These questions need to be answered because you MUST learn from them in order to be a more consistently profitable trader in the future. If you want your friends, family, support group, trading community to learn from your mistakes so they don’t make them, then you have an obligation to journal every trade you take. Trust me your future you will thank you.
3. SPEAK WITH A TRADING MENTOR/FRIEND
Now there is a stigma that exist in our society about not showing or letting other people know about your failures. Since you are reading this blog I take it you are not one of those individuals. In most cases you already have some type of trading mentor whether he/she is accessible via phone, online chat room, email or in person. Therefore, let it out. Tell that person about the trade and give them the opportunity to coach you through the expense. Because I am sure they have experienced it as well.
I remember talking my buddy through his $25,000 expense doing a similar trade that cost me $3,000 the first time and $7,000 the second time. Now I had never taken a hit as large as $25,000, but I was there to encourage him not to quit. And help identify what he could have done better in the trade. So who do you think I called…yep…my buddy. He gave me reassuring words that the game is not over. We ae in it for the long haul. Look, don’t be afraid to be vulnerable in this environment. Iron sharpens iron! Go get sharpened so you can slice through the market with ease next time.
4. STUDY WHAT YOU DID WRONG/MISSED
I know this can be generally be a part of your journaling process, but sometimes people neglect to actually acknowledge what they did wrong. This is human nature. I wanted to make this a separate step because you have to give time to really look at this piece of your trade. Now, maybe you didn’t do anything wrong and the market/stock just did the unexpectable, so ask yourself what could you have done differently. But in majority of the cases there is something that you may have missed in the trade. Especially when the loss is of a significant value or percentage of your account.
Study the past instances where something similar occurred in the market/stock chart and identify if you missed an indicator on your entry/exit. If you have done the previous three steps this should not take too much time.
5. PREPARE & TAKE THE NEXT TRADE
This is the most critical step in overcoming a large loss.
Please do not miss this…YOU MUST PREPARE & TAKE THE NEXT TRADE THAT FITS IN YOUR TRADING PLAN!
How else will you earn back the large expense? If you do not trade, then you will not make any profits. You miss all the shots you don’t take. In the end we only regret the chances we don’t take. Nothing is more expensive than a missed opportunity. I mean…how many more one liners do you want to prove the point. In business you fail your way to success that’s why I love John C. Maxwells’ book Failing Forward. We take a hit, but we keep on going. This is crucial in the world of stock trading. The most successful traders have a win/loss ratio that leans towards more expenses, but they have just learned to make those expenses a lot smaller than their profits. That is why they are successful and why you will be too.
Think, Live, & Be Unstoppable!
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