The reality of big losing trades….don’t say you’ve never had one!
Realistically, every
trader has made a stubborn, big losing trade.Â
What do you do if you’re really “stuck” in a doozy? First,
there’s no such thing as “stuck.” No supreme being is preventing you from
pushing the buttons. The first thing you can do is offer a sacrifice to the
trading gods. In other words, immediately get rid of 1/2 or so. Whatever the
case, cut down the size. Right off the bat, you’re taking action instead of
freezing up. You’re reducing your risk, and you have shifted the psychological
balance to a win-win situation. If the market turns around, you still have part
of the trade on. If it continues against you, the loss will be more
manageable. I’ve found that I usually would have been better off if I had
exited the whole position on the first order, but not everyone can do this. A
famous trader was speaking and somebody asked him what he did when he had a
terrible losing trade. He replied that his stomach would begin to hurt and he’d
“puke them at the lows along with everyone else.” The point is, everyone makes
mistakes but sooner or later, you’re gonna have to exit that nasty losing
trade. “Feel good” trades help one get back in the game. It’s nice to start
the day with a winning scalp. It tends to give you more breathing room on the
next trade. The day’s psychology is shifted in your favor right away. This is
also why it’s so important to get rid of losing trades the day before, so you
don’t have to deal with them the next morning. A small profitable scalp is the
easiest trade to make. The whole secret is to get in and out of the market as
quickly as possible. Of course, this strategy isn’t substantial enough to make
a living, but remember that the object is to start the day out on the right
foot.
If you’re following a method consistently (consistently
being the key word) and making money, how do you make more money? You must
build up the number of units traded without increasing the leverage. In other
words, don’t try swinging for the fences on every trade, and instead, add more
trading units. Proper understanding and use of leverage can be the key to your
success and longevity in this business. Most traders who run into trouble have
too big of a trade on. Size influences your objectivity, and most people react
differently when they’re under pressure from being overleveraged. They tend to
be more emotional or reactive. They tense up and their judgment becomes
impaired. Many talented athletes can’t cut it simply because they choke when
the pressure’s on. You could be a brilliant analyst but a lousy trader.Â
Consistency is by far more important than brilliance. If you admit to yourself
that you truly don’t have the will to win at this game, then it’s very simple.Â
Don’t try to trade. There are easier ways to throw away money. Many people
think they’ll enjoy trading when they really don’t. It’s boring at times, it
can get lonely, it can get mentally trying, and it offers little structure or
security. The markets are not a logical or fair playing ground, BUT there are
numerous inefficiencies and patterns ready to be exploited, and there always
will be.
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Please feel free to
email me with any questions you might have, and have a great trading week!
Chris Curran
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