Last month’s drawdown is fresh in my mind.
When you take a beating, it’s one of those things that tends to stick with you for a while.
But that’s not always a bad thing.
While second-guessing yourself isn’t helpful, taking a second to step back is.
In fact, I build mental breaks into my trading on a regular basis.
And I want to show you how.
Unless your computer algorithm trades for you, emotions come into play.
When we let these take over, it can devastate our accounts.
And most of the time, we don’t see it coming.
So let’s cover how to recognize it and then keep it out of our trading.
We all go through hot streaks in our trading just as we do a string of losses.
Losses have a way of sapping our self-confidence.
Wins make us arrogant.
Too much of either should be avoided.
When I notice a bunch of wins or losses in a row, I start to wonder why.
I ask myself:
- Am I taking the correct setups?
- Are the market conditions favorable?
- Do I have more trades on then I would normally?
Funny enough, whether we get on a winning or losing streak, we tend to increase our trading.
Losing streaks cause us to seek revenge while winning streaks get us cocky.
Sometimes I force myself to carry a maximum number of positions at any given time.
That keeps me not just from overtrading, but losing my place, which happens more often than you might think.
Never get bored
Slow markets happen and they suck. They’re the worst thing for active traders.
We stare at the charts for hours on end until we see things that aren’t there.
Eventually, we start clicking the mouse for the sake of it, ending up with trades we have no business in.
Next to my desk, I keep a handful of study materials. Some go over basic concepts like Fibonacci Retracements, while others contain various ideas I want to explore.
That doesn’t include the errands I run and shuttling the kids back and forth.
The point is, I always have something to keep me busy.
When I don’t find something worthwhile, I don’t force it. I simply minimize the screens and work on something else.
In fact, I sometimes try to forecast when I expect slower markets precisely and pull study material beforehand. If I’m right, then I don’t need to spend every minute on the charts. If I’m wrong, I can keep the information for another time.
It also helps to talk to and chat with other traders.
Trading itself can be a lonely business. Having a chat room or even a friend to bounce ideas off can do wonders.
Watch out for FOMO
Markets love to pull in traders like you and me right at the last possible second before pulling out the rug.
When stocks like Stich Fix (SFIX) jump over 40% premarket, you feel like you missed the bus.
It’s even worse when you aren’t heavily invested in the market and everything is flying.
Over the years, I realized that no matter how well I did, I always felt like I could have done better.
I would compare myself to other traders even when we didn’t trade similar styles.
That’s a great way to get yourself into trades after the fact.
While I mentioned that I enjoy talking with other traders, I focus on making the right decisions for my accounts.
I actually set triggers where after too many losing trades in a row, I reset my accounts and start over.
This does two things for me.
First, it ensures I pay myself something.
Second, it resets me psychologically.
There’s something about the caution and trade selection when you have a smaller account instead of a larger one.
I find I tend to wait for better setups when I can only take a few trades, avoiding getting involved in ones that are marginal.
And especially after a bad beat, getting a few wins under your belt can really boost your confidence.