We usually follow our trading rules and strategies. We make trades, and we book profits, however sometimes losses are inevitable. That’s is normal – it’s part of a trading routine. We all have to be ready to get losses as it is just typical operating costs.
Wins are taken as a norm, but losses usually cause stress and hit your confidence. As we all know profits are booked easily with minimal consideration, but when we face some losses in a row, we question whether we have fundamental issues in our approach to trading. As always we promise ourselves that next time in a similar situation we will act differently and won’t enter a trade or will wait for more affirmative signals before we proceed.
I believe the first mistake is done when we stop analysing our profitable trades and spend loads of time thinking about trades that went wrong. It’s human nature to be disproportionally impacted by things that went against you, but we also have to make sure that profits that we book have a solid reasoning and are not caused by randomness.
After many years of trading, I accept losses as part of a trading cycle and always write about them in my diary adding charts with comments. I believe it is not acceptable to get losses a number times in a similar position since we should see similar patterns before they emerge, which could be prevented or eliminated.
After an unprofitable week, I always analyze trades and spend hours thinking about a sequence of events which led to this outcome. Thus, the following week I go through my notes trying to remember every mistake I have ever made before a book trade. It’s painful, but it helps to avoid the same mistake again. It’s crucial to make sure that every detail is captured – it has to feel as if it happened yesterday.
In my first years of trading, I used to start reading everything from the first page of my journal, realising that some comments are repetitive and some trading behavior that I dislike happened more than once. It always surprised me that I kept repeating particular trades which I would call as fundamentally wrong any day of the week. It is obvious that most of the issues stemmed from the lack of discipline. By now, I have eliminated so many bad habits of my trading improving my trading style.
I remember in first years of my trading career I used to do ~10-12 trades per week and ~6-7 of these led stop losses being triggered. These days I make only 1-3 trades per week, with at least two-thirds of them on average generating profits.
It is important to learn by reading textbooks and by following other traders. However, it hits us so much harder than we face a loss ourselves. Knowing that feeling changes everything – we realize that it is crucial to have a proper strategy and a journal that prevent us from making the same mistakes again. Get a journal – it could potentially save you a lot of money.
This explains the topic of the day – we must have a proper rationale for every trade we make not limiting ourselves to losses which we booked along the way. However, I would also urge to avoid blaming the market, brokers or everything around us when things go wrong – every loss we make is a direct consequence of our misjudgement. This game is not for those who are not ready to accept their mistakes