I received this email today from a veteran and *very* successful independent trader. He sends me his thoughts on his trading each day, which I really enjoy reading. And I share some feedback, where I can help.
Remember, these are the thoughts of a very successful and veteran trader. If he has them, then certainly many of us have the same struggles and thoughts as well.
I’ve traded on tilt this week and taken a really big hit. I was overly bearish and thought that any rally we saw, we would eventually see lower prices. That’s probably true, but I was misjudging my risk/reward and then let the pressure get to me and force me to keep trying to catch the trade with big size so as not to admit the loss. I obeyed my stops on my individual trades perfectly, but that does nothing when you just hop back in the same losing idea 5 minutes later and take another relatively small loss and do that 10-12 times a day.
I started on simulator on Tuesday, as I said I would. However, after we got the morning drop, I was pissed I’d missed it and convinced that it was the start of a larger down move. I opened my account and started shorting and just got run over again and again over on Tuesday and Wednesday. I’ve shut down and am taking the rest of the week.
This has really shaken my confidence to the core and will require a good while to work back from both from a P&L and a mental standpoint.
An antidote for the experienced trader to having one of this crushing days both financially and emotionally is to set a daily stop loss. There are a few big traders on our desk for who nothing good happens after they are down more than 10k. Find that number in your trading if you are experienced. Set that as your loss limit. Empower someone, usually a risk manager at a prop firm, to shut down your trading when you have reached this daily stop loss.
For swing traders, you can do this as well. Allow yourself a weekly stop loss. We recently switched an experienced swing trader from a daily stop loss to a weekly stop loss, much to his happiness. If you hit this number, then it is time to shut it down for the week. Of course these numbers should reflect your drawdown from when you opened a position. If you were 20k in the money and then gave back 5k then that needs to be handled differently than straight losses from open positions.
Notice how these financial losses have affected the psychology of the successful veteran pro trader above. During earnings season and with markets near highs was forced to take a time out. By not following a daily stop loss, trauma was born. And this caused him to miss other trading days and other trading opportunities that might have been the best of the month.
There is a reason why coaches pull players out of the game. They are playing poorly and harming the team. All of us former athletes know that some days we just cannot make a shot. Have a stop loss and empower someone to take you out of the game. On this day you stink. But that doesn’t mean that you do stink. And don’t allow a bad day, where you just are not seeing markets well, to be more than just that. One… Bad… Day. Don’t let one bad day turn into one bad week or one bad month. It can if you do not limit that bad trading day.
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*no relevant losses
