Is There Anything I Can Do to Help You?

December 12th, 2018 | 7 minute read (Repost from We The Market)

After a devastating loss recently, my wife asked, is there anything I can do to help you? My response, I don't know. In fact, I don't even know how to help myself. I am still doing the rookie mistake where my losses are larger than my wins. This needs to be corrected NOW! To correct this behavior you have to think and research the problem.

One of my recent victories of day trading was 15 consecutive winning days. I made many adjustments for this to happen. One of the adjustments was to end sooner than later when I was positive cash. This would mean even a small amount. Now this does not mean that I place an order and as soon as I hit $1.00 I pull out. The process is I place an order and I manage the order according to my plan. Before I take a trade I plan by creating an image of my chart with support and resistance lines that act as my stop loss and profit targets. Once the plan plays out and I am positive cash flow I would quit. I would end early as part of my overall trading goal. 

Ultimately I had to confront and correct a bad behavior. The bad behavior is exhibited in gamblers. Gamblers can’t quit while ahead. I wanted to know why I could not quit after scoring a win. I learned from Rande Howell that we are emotionally hijacked when either a win or loss occurs. I had no idea that euphoria would impair my thinking and further result in a loss for the day. I had demonstrated this 100 times over. This was a revelation. One that would turn me profitable. A trader also has to learn that quitting while ahead is not natural. You have to train for this action.

Learning to be good loser is my next goal. What defines a good loser? Losing less than your average winning day. To win a war you have to identify the enemy. To win this battle I have to find the enemy. Look no further than a mirror. That still is not enough. I must drill down deeper. Losing more than I win is dumb. Why do I do that? Am I dumb? No, but many traders have dumb behaviors, including me. I first learned that when we get mad WE ARE DUMB.  Our skills drop. (Time 0:57) When we win WE ARE DUMB. We have euphoria, over confidence and we no longer follow our plan for each trade and then we start to lose. 

What happens when we take a loss? We get mad and then we stop thinking clearly. Situations get out of hand. Losses snow ball. When we enter our trading day we immediately come under stress. There is stress when losing money. Guess what? Under stress we do not think clearly.  Stress releases cortisol, raises your heart rate, modulates adrenaline and clouds your thinking. (Time 1:38) The field of day trading is automatically putting us at a disadvantage at the start of the day. When we start the day we are stressed out.  

Now we are getting somewhere. I corrected one bad behavior when I identified why I have had so many winning trades in the day only to end the day with losses. The winning emotions would hinder my thinking. Trading demands critical thinking when analyzing charts, price actions and reading indicators. I recognized this behavior and corrected the problem through discipline of quitting after a winning trade. As a new trader this does not feel natural to me but I have proven to myself this works. 

Now to correct my losing days. Losing is inevitable. How much you lose can be controlled by the trader. First let’s address starting out the day with stress. We learned that stress clouds our thinking. For me, when I plan out my trade I am less stressed or not stressed at all. I have a plan for taking profits and exiting when the trade does not work out. Now, if a plan helps with stress then there should be a plan for losing.  Are there systems I can put into place that will prevent bad things from happening? Or, will minimize the likely hood of it being a total catastrophe? (Time 2:38) What systems can I put in place? Again I look at Rande Howell’s training, recognize your emotional triggers. Losing will cause stress which will trigger emotions. My breathing and tension around the eyes are my emotional trigger signs. When these triggers occur I remove myself from trading and practice emotional regulation. A trader MUST return to critical thinking or do not trade. That simple. 

Some readers might have already discovered these revelations but are still failing to follow their rules. They are not disciplined enough to be successful. You have a plan to minimize but you don’t execute your plan. You must train for this situation. You can’t buy a book on Karate and then perform at a proficient level without training.

Judo masters begin not by learning how to throw, but how to fall. They practice this skill until it’s as natural as breathing. No matter how many times they’re flipped, they can rise to fight again.

How do you train for losing? Do you purposefully lose in the stock market to train for this situation? God No. At least I am not going to practice that drill live. You might try paper trading. Another technique I recommend is, visualize the process in your mind of taking a loss, recognize emotional triggers and remove yourself from your trading desk and practice emotional regulation. Emotional regulation is too large a topic to cover here but the very short of it is: Deep breathing, in a calm environment, looking at soothing relaxing images. The goal of emotional regulation is to return to cognitive thinking. 

When I was in the police academy, training to be a Colorado Ranger, we would practice drills on the firing line. Obviously being shot at is very stressful. We visualized a bad situation and we drilled how to handle it. We would shout out commands to the assailant, repeat over and over the moves to draw our weapon and position ourselves to fire if needed. In fact it is hard for me NOT to follow the steps precisely because the training ingrained the moves in my head. My moves are identical time and time again. It is natural. 

As you guessed it already, practice by visualizing that you have hit your loss figure for the day. Shout out commands if necessary but repeat the moves until it is natural. The process might look like: 1. You have just taken a loss. 2. You recognize the stress and emotional body triggers. 3. You leave your trading desk and practice emotional regulation. 4. Live to trade another day.

Trade well and live to trade another day.