Date: 3/20/2023
Author: Chris Hood
Most people start trading thinking it’s a key to overnight success.
But it isn’t that simple.
It’s a game of probabilities, and you’ll have highs and lows throughout your trading career. What happens on a particular day or week isn’t important in the long run.
Instead, it’s consistency over time.
If you don’t blow up your account, you’ll build the skills to trade yourself back from even horrible drawdowns.
It just takes discipline and patience.
During the past year, I’ve been curious about how different traders handle their highs and lows.
Their responses have been enlightening.
Though I have my techniques, they may not work for everyone. So here’s some wisdom from others that can help you along your journey.
A long series of winners can be just as detrimental to your trading as a string of losses.
Traders on a hot streak often suffer from “winner’s euphoria.”
It’s that feeling that you’re invincible. The mistaken idea that you’ve outsmarted the market and nothing can touch you.
This is when most people tend to take their most significant losses.
So if you find yourself with a 90+ win rate for several days or weeks, consider the following advice.
- Think back to when you had your most painful losses. Then, remind yourself that it could happen again at any time.
- Avoid the temptation to overtrade. If you’ve hit your weekly profit target, consider taking a day or two off, so you don’t immediately give it back.
- Take your profits out of your trading account, or purchase investment shares with them. Otherwise, you risk oversizing new positions and losing it all.
Of all these, the last is the most important. Some people might move their winnings into a savings account. Others make investment purchases.
A couple of years ago, buying stock shares was a great strategy.
However, we were still in a bull market then – I’m hesitant to invest right now.
A recent video by Mike Carr discusses just why this isn’t prudent. So if you’re thinking of buying beaten-down tech stocks, take a moment to watch this first.
With a series of losses usually comes a crisis of confidence.
You’ll probably start doubting yourself as a trader or second-guessing a consistently profitable system. So get this rubbish out of your head.
All traders and systems have drawdowns.
You have to learn the emotional skills to manage them. So try one of the following strategies:
- Take a few days off and review your losers. Was it human error? Do your set-ups need adjustment or was the market environment too tricky?
- Keep trading, but cut your position size down dramatically. For example, if you risked 1-3% per trade, try 0.5-1%. After you get a few wins under your belt, you’ll regain your confidence.
- Switch to paper trading for one week. Not playing with real money will help prevent reckless “revenge trading.”
All of these techniques are viable, but there’s no one-size-fits-all approach.
Decide which you’ll use, and I promise your account will thank you.
Cheers,
Chris Hood
P.S. Corey Synder recently went live with Emmy Award-winning journalist Seth Allen for American Oil Fortunes to demonstrate precisely how this one surprising stock could hand you a 1,000% return – or greater – over the next 12 months… All you have to do is click this link to watch the replay of American Oil Fortunes.
