Date: 1/23/2023
Author: Chris Hood
There was some lively discussion in the Trade Command room last Friday about troubleshooting losing trades.
First, no one wins all the time.
Through proper indicators can give you an edge, it is impossible to win every trade.
Despite detectable patterns and trends, the market often makes completely unpredictable moves. To be consistently profitable, you must analyze each of your losing trades.
Never just sweep that trade under the rug.
Look closely and there’s a lesson to be learned that will put you on the path to success.
It’s easy and unproductive to blame the market, computer algos, market makers, or anyone but yourself.
You entered the order and placed the trade. Own up to it and figure out how to do better next time.
These two critical questions will tell you exactly what you need to work on for improvement.
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First, ask yourself, “Was this a bad trade?”.
In other words, did you set yourself up for failure from the start?
Starting with an ill-devised position takes away any edge you have, and can stack the odds against you. Not something you can afford over time.
Over my years of trading and coaching by far the most common issue with bad trades is failure to understand charts and indicators.
Consider these questions.
Can you identify trends?
Are you able to determine support and resistance levels?
Do you have a working knowledge of moving averages?
Can you specify what set-ups or technical signals prompt you to trade bullishly, bearishly, or neutral?
I could list many more but, if your answer is no to ANY of the above questions, then you have some homework to do.
Watch some educational videos and read some books. Or better yet, ask me in the trade room. I’m not just here to give you trades – I want to teach you how to trade on your own.
The second problem most traders have is improper trade management.
So ask yourself about each losing trade, “What could I have done to either turn this into a winner or at least minimize the loss?”
Trades with weeks or months to expiration provide ample time for management. You have plenty of time for decisions.
If you’re trading options with 0 DTE or next-day expirations, you’ll have to manage much more quickly.
Have a plan in place BEFORE you place your order.
A few more questions to think about.
Do you know when you’ll take profits on your winners and when you’ll exit your losers?
What will you do if the position is threatened but hasn’t hit your stop loss?
How will your signals or indicators guide your decisions to keep the trade, close it, or make an adjustment?
What adjustments will you make and under what conditions will you make them?
Just like with placing trades, if you can’t answer YES to all of these, you should not open the position.
If your system is mechanical and has only a few rules that’s fine. Just know what they are and make sure you apply them.
For those with different guidelines for different trade types, be sure to apply the correct ones.
By looking back over your trade journal, you should be able to identify the problems with any loser.
If you followed your rules and still lost then it could simply have been the probability of loss playing out. Remember that even with an 85% win rate, 15 trades out of 100 aren’t going to work.
But if you’re following your rules and consistently losing consider making changes in your plan.
If you’re struggling then use this process.
Or better yet, sign up for Trade Command’s limited-time trial offer and let me help you.
Cheers,
Chris Hood
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