If you have traded for longer than a few seconds, you will have quickly realized how much of a mental game this really is. From the first time you execute your first live trade, to being in a great trade that goes south quickly due to news. Crazy market conditions happen all the time and they are the true test for any trader.

 

Can you keep your wits about you while things seem like they are falling apart?

 

Everyone loses their cool. We are human. It’s ok, I promise. The important part is that we take a step back and understand what is going. Once we understand what is happening, we can learn and grow from it. We can take this new information and use it the next time we find ourselves in this predicament.

 

Let’s consider a scenario:

 

  • The day starts off like any other. Cup of coffee and charts loaded up and we are ready to go.
    • Charts freeze on loading up and crash.
      • Have to clear out DB files and reload now
  • Back on track. Charts loaded up and connected. Ready to roll!
  • First trade, beautiful setup. Easy entry, easy exit; textbook. +2R
  • Second trade, sketchy setup but confidence is high now after securing a first trade win on a bad start to the day. We have overcame.
    • The trade works out but was a bit rocky to start which reinforces us +2R
  • Third trade, great looking setup. Easy entry, easy stop out. No dice. It looked great but the market had other ideas. -1R
    • No big deal, still have two wins to start and gave back one. Mentally still totally fine but a bit set back from our earlier built up ego.
  • Fourth trade, great setup but cautious now with reduced sizing. I just had a loss and don’t want to give back anything.
    • Decisions being made off of fear rather than strategy now. There is a fear of loss, but there has been nothing wrong with the strategy!
    • The trade loses again. Ha! I knew it. I knew I should have been cautious. -0.5R
      • Further reinforcing the decision to trade out of fear rather than strategy…
  • Fifth trade, great setup but skipped it. Something didn’t feel right. I was right on my last judgment call, my ego is huge, chances are this is a failure too. You can’t fool me market!
    • Would have been the largest winner of the day by a mile. I missed it. Yikes.
  • Begin scrambling back to analyze the trade and what I may have missed. Why did I skip this setup!?
  • Realize that it must have been the trend line here. That’s why I didn’t take it.
    • Totally made this trendline up… I didn’t even see the trendline at the time I just need to justify myself so I don’t feel too stupid…

 

**Now, at this point this scenario should end. Assuming every trade taken is 2R, then the day would still be up +2.5R. That is still a fantastic day! There is absolutely nothing to be upset about 2R day. That said, we all know how this goes… **

 

  • Sixth trade, strange I don’t normally have six trades in a day but today has been pretty active. Probably just the volatility. Nice setup, solid move towards target, exited early because I was nervous from the earlier trading. +1R
    • The trade would have been a great 2R winner. Why did I exit early again? Sheesh…

 

**Keep in mind, this is a WINNING DAY but it feels like you have been stepped on from the start. END THE DAY NOW AT +3.5R! Yeah… Sure… like that was going to happen**

 

  • Seventh trade… wow seven? Great setup. Or it would have been if I hadn’t forgotten about the news at 14:00. Great.
    • Charts freeze again while trade is tanking
    • It’s fine… my stop is in place…
      • Restart charts a bit in a rush because of nerves
      • Watching my phone to see where price is and seeing it crank lower and lower while I was long… my stop was in place right?
    • Charts load up and… oh no. Price skipped my stop during the crash… I am still long!
      • EMERGENCY MODE – Close everything at all costs!
      • Flatten all closes all positions. The news at 14:00 just gave back 3R because of my stupid friggen’ stop. Thanks [insert scapegoat here]!

 

From here, you can already tell how the rest of the day will go. Either the first, and smarter, choice at that juncture would be to call it a day. Still up +0.5R and learn from what just happened.

 

We know that won’t be the case but that is the best option.

 

Instead, trading typically continues because you need to make back the loss you were just unfairly dealt. Hint – The market doesn’t care about fair. It is inanimate. It will rip your face off and smile at you while doing it. Fair doesn’t exist here.

 

The day will, of course, get worse and worse. That is the way of things when you trade off emotion rather than strategy. So, what are a few things we can do to put in place a system of checks to prevent this?

 

One of the first major things I like to do when I take a loss is step back for a few minutes and reset. The loss isn’t the part that concerns me here, those are natural. Accept them and move on with life. What concerns me is that I took the loss because I analyzed something wrong. So going back and re-checking your drawings, indicators, etc… is a good idea. By going back and double checking your work, you can reassure yourself for when trade four comes along. There won’t be a hesitation to take at normal size per your strategy and the win would have offset a lot of problems today.

 

This is where the market will test your mettle. Your loss would have instead been -1R instead of -0.5R which feels like it’s punishing you for making the right choice. Remember — The market DOES NOT CARE! Go back and re-analyze again. Losses are part of the industry and there isn’t a thing we can do about it other than accept it and move on. By taking this approach, trade six would not have been skipped and kept the day right in line at a great winner in lieu of the larger loss on trade four.

 

The moral of the story is this. We all have emotional swings. It’s part of being human. What we need to do to ensure we maintain a positive expectancy is understand our human traits, and learn to understand when things are shifting. Sometimes keeping a journal through the day will help you analyze these trends but learning to understand them is key. When you understand what makes you tick (bad pun… sorrynotsorry), you can better understand how to adjust with your own natural ebb and flow.

 

Stay safe out there traders, keep those stops in play, and let those winners run!