In This Episode
- Do losing trades mean that the markets are trying to tell you something?
- How to rate your trades to see when there is something really wrong.
- When good trades can turn into bad trades, simply due to mindset.
- How identifying bad trades can be a good thing.
How to Handle Trading Losses
The first thing that you might think when you have a loss is: “oh crap.” Then you might start beating up on yourself and that can lead to a downward spiral of more losses and negative emotions.
In this episode, we talk about how to address those feelings and objectively review your trading performance. We also talk about how trader self esteem can come from a trader's win rate and why that's a rookie belief.
Learn the method that Hugh uses to rate his trades. This method can help you understand how well you're trading and if you should actually change anything, or if you should just keep trading.
Read the Transcript
Hugh: Hi, Walter. So, I’d be interested to find out. What goes through your mind as soon as you lose a trade?
Walter: Well, that's a good question. Other than the usual damn! I think my perspectives changed over the years, I suppose. I read once a trader who wrote something that I respect. But I totally disagree and he said that every time you have a losing trade I truly believe the markets are trying to tell you something. There's a lesson there.
I can see that angle. I can see why you would say that but I disagree. I don't think so. I think you know if you think about it like genetics. It's kind of like genetics. Some of your genetics you are probably happy about.
The hand you were dealt with you know. The dice that came out in terms of your DNA. Some of them you're probably not so happy with. I think of the same with trading systems.
So the number one thing I want to make sure of when I have a losing trade is that I did the right thing by taking the signal, do you know what I mean? Obviously, I don't have this problem anymore.
I used to have the problem of moving my stops. So I actually ended up with a different trade. I had a trade where I was risking two percent for example and then because I got so close to my stop, I’d move my stop. I ended up risking three, four, five percent on the trade because I wanted to be right.
I don't do that anymore. I kind of swung the other way where you know as soon as the trade kind of went against me like fifty, sixty, seventy I would bail out of those. I found out that my testing had shown that it's actually more profitable to let it ride.
So that's kind of how I trade now as I let it ride. But the number one thing I want to make sure of when I have a losing trade is that I didn't fail in the execution. That's really it because that still can happen.
You get in late or you take a signal that's not really that good or you know those sorts of things. I'm sure you've had experience with those as well.
Hugh: Yeah. I mean that's the number one thing I look for. I go to the journal. Journal it. Take a look at the before and after screenshot. Nine times out of ten, it's going to either be like a one or you know like a really poor trade.
A poor entry or it's going to be a four and an excellent entry. So even if I have a losing week and I have like two or three ones there. I'm like, “I'm okay because those are just poor trades” So I can improve on something but if I'm losing and they're all fours then there's something to look at, right?
Walter: That's right. I mean, I think you've nailed it. That's why I think the major gains are made in trading is by just keeping your eye on the ball which is execution. I really do believe that.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's submitted.
So, if you're interested in that be sure to enter after this podcast is over. Alright back to the episode.
Walter: The other thing I wanted to say was like right now, I have a bunch of trades on. One of them doesn't look good. It looks like it's probably going to get stopped out. I think I have five on right now.
So I was looking at it this morning actually. Thinking about it like you know why did I and all the other ones look fine. It's just this one you know. People would probably call them correlated too.
People would say, “Why are you selling the Aussie/Swiss and the New Zealand/Swiss and the Aussie/Dollar and the Kiwi/Dollar?” Well actually, it's not obviously because one of them is probably going to get stopped out.
Maybe it already has stopped out while we're sitting here and the other ones don't look like they're really going to get stopped out. So do you know what I mean? I always consider them to be independent.
As long as my execution is right, I feel like I'm doing the right thing. I don't necessarily think that I missed out on a lesson. I didn't see something that the market was trying to show me. I think that's the road to over optimization and I think that's dangerous.
Hugh: When I first started also, that's a good point. I would think that every losing trade had a problem. So I'd like to beat myself up over the losing trade. I didn't really look at it closely but if I went back to it probably fifty, sixty percent of them were good trades but I was just beating myself up over a loss. It was you know I wasn't there to learn anything. It's just a losing trade.
Walter: Yeah and that's because when we first start out, I believe when we first start out, our self-esteem like our trader self-esteem comes from our win rate, right? What I'm trying to say is, I'm trying to shift that to execution.
I want my self-esteem, my trader self to see my confidence to come from how far am I straying from the optimal execution point you know and so that's a different focus. If you look at the free forums like all the free factory forums, people are all, they're always like it's almost always about win rate.
Everything is about “This is a high win rate. This is a great system.” It's like you know they're not really in my estimation, they're not really zooming in on the thing that's going to help them the most. I think though if you stick with it long enough you'll get it but it's just a bit tricky in the beginning.
Hugh: Yeah, for sure. Cool, alright. Thanks Walter.
Walter: Thanks.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
Enter the Monthly Contest
We give away a trading prize every month, so be sure to enter to win.
You can win by doing one or more of the following:
- Leave a comment on YouTube
- Leave a review on iTunes
Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.
The giveaways can include books, coaching sessions, trading tools, or surprise gifts.
It will usually be something that will help you improve your trading psychology.
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