All Entries Tagged With: "Losing"
Succeed by Not Failing
January 13, 2011 at 12:53 pm
Too many traders think a winning trade is a good trade, and a losing trade is a bad trade…a failure. I disagree.
The result of a trade is either a profit or a loss, but not a success or a failure. Good trades can end up being losses, and poor trades can sometimes result in a profit. For example, jumping in front of a big move on a whim in hopes of getting lucky timing a reversal is a poor trade, but it may still make you money. Good luck repeating that over time.
So, rather than focus on losing trades as the definition for ‘failure’ in trading, let’s take a look at 3 common ways traders fail:
To fail in trading is to not have a plan. Failing to plan is planning to fail, according to John Wooden, and he knew a thing or two about success. Great traders know what they’re doing when they go to execute an order. They have an expectation for the trade, a reason behind it, and an exit strategy which they will absolutely follow. Even beyond a per-trade basis, you should have a plan in place for your style, your goals, and when you’ll be cautious. Plan for dull phases in the market, plan for volatility, and plan which strategies you’ll employ and when.
To fail in trading is to abort your plan for something beyond your current ability. I’ve made this mistake many times, and I’ve witnessed it in others. It usually happens something like this… Consistent money has been made, confidence has grown, but greed sets in. Rather than increasing your size incrementally, you double it overnight and start adding new plays to your repertoire. Not a good combination. You lose money, you lose confidence, and now you’re unsure of what to do next. Stick with what you know. If your buddy makes a certain play look easy but you struggle with it, learn it slowly – don’t try to make your week with it on the first shot. Keep growing, but don’t rush your development.
To fail in trading is to have an inconsistent process. A good golf swing is one which repeats (doesn’t matter what it looks like — ex: Jim Furyk). If you aren’t repeating your process over time, how do you know if it really works? Suppose you focus on news today, charts tomorrow, and your favorite chat room the next day…where will your consistency come from? This also happens when you show up on Monday morning with a revised strategy, give it a day to prove itself, then move on to whatever method you think you should try next on Tuesday. It’s throwing the proverbial spaghetti against the wall to see what sticks, and that’s no way to grow as a trader. Start simple, add a little to your work load as you get more efficient, but be consistent with what you do day in and day out – at least until you can single out certain areas which need adjustment.
Avoid failure as a trader by taking action only when you have a game plan, and only when you realize the risk you’re putting on. Avoid failure as a trader by abiding by your stops, which pertains to each trade as well as your daily, weekly, or monthly loss limits. Walk away when you’re wrong, and place your ego aside. Those who fail to submit to the market are only here for a little while.
Choose to stick around…only those who stay in the game will be ready to capitalize on the best periods of opportunity when they arrive.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
5 Rookie Trader Mistakes & How to Avoid Them
October 4, 2010 at 8:50 am
In trading, as in life, lessons can be learned out of inspiration or desperation. It’s hard to say which is better, but I know that regret is quite a teacher.
For example, I’m in the process of buying a house right now, which will be the second for my wife and me. Eight years ago, I made several mistakes as a first-time buyer, some of which I’ve wished I could go back and change. Experience educates each of us, fortunately, and needless to say this time around (I think) I’m doing it right.
A lack of experience is responsible for many mistakes newer traders make as well. Those errors not only prove costly the first time around, but they can also ingrain some bad habits if not corrected quickly.
Over the years, I’ve been fortunate to work with hundreds of traders around the globe, of all trading styles and timeframes. And yet as diverse as these traders seem to be, a handful of common issues continue to surface. Coincidence? No. Just human nature, which the market preys upon.
So, to help you stay on the right path with your trading, let’s take a look at 5 common mistakes rookie (or struggling) traders make, and how to avoid them.
1. Adding to Losing Positions. This is a biggie, and it addresses perhaps the most common lapses in judgment among traders of all experience levels. Gartman says to “do more of what is working, and less of what isn’t working.” By definition, a losing position is not working. And unless you originally planned to scale into the trade, adding to a loss is a big no-no. Take note of your P&L, and if you’re wrong, avoid throwing good money after bad.
2. Forcing Trades Out of Boredom. Boredom is one of the biggest enemies of today’s trader, because it leads to so many bad decisions (like overtrading). Transaction costs are so low and it’s so easy to place trades that one can easily forget just how costly boredom trades can become. So if you’ve done your homework and come up with very little, place no pressure on yourself to be active. There are times where sitting tight is exactly what you should be doing, so have the courage and discipline to do nothing when that’s the case.
3. Switching Strategies By the Day. I’m all for trading with multiple strategies, and as your experience increases, your trading toolbelt will begin to fill. However, each of us during times of struggle has encountered the losing streak. That’s perhaps the biggest cause for traders to throw the proverbial spaghetti at a wall to see what sticks. While experimenting can yield some clarity, doing it in either the wrong fashion or too frequently can prove counterproductive. Get some trader training, put some strategies to work across multiple timeframes, and give them enough time to prove their effectiveness. Trying something for a day, losing money with it, and shifting quickly to something else isn’t responsible, so avoid that limited mindset.
4. Putting Everything on the Line for one ‘Idea’ Trade. I was once warned by a more-experienced trader, “don’t get any ideas!“ He was right. A longer-term thesis takes time to play out, so leave that to the fundamentalists who don’t mind tying up their capital for months on end – for better or for worse. Stick with what the price action is telling you, and determine the best opportunities to get on board for the next move. Ideas are only useful when they relate to technical discoveries, so don’t bank on guessing right for one big recovery play – it may instead prove to be the final nail in the coffin.
5. Hoping a Stock Will Recover. Each of us has been trapped by a bad trade, and we’ve wondered if sitting motionless and simply hoping to be let out of the trap is the best solution. Marty Schwartz, of Pit Bull fame, mentioned how as a soldier, he was trained to do something when under attack…either fight back or retreat, but don’t just sit there. Hope truly is a 4-letter word in the trading realm, and relying solely on hope will provide plenty of damage to your trading account. Stops are available for good reason. Game plans offer if/then scenarios to follow under the gun so that big decisions need not be made in times of stress or volatility.
Avoid making these mistakes, and your money will be much harder for the pro’s to take.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Disgusted
June 18, 2010 at 10:54 am
Disgusted…
It’s a word you probably learned in junior high when someone paid that kid $5 to eat frito pie from the cafeteria trash can.
But it’s a word you still experience.
You hate the way you feel, so you start eating better. You hate how your yard looks, so you get more diligent at mowing, fertilizing, and watering it. You’re sick of that relationship being on bad terms, so you make amends and try harder going forward.
Trading can be the same way. It can leave you wondering what you’re missing. The market acts or moves a certain way for so long, then shifts on a dime. You’re left feeling clueless and out of sync. You’re hemorrhaging capital, and you have no idea how to stop it. You’re completely disgusted with it.
Disgust isn’t necessarily a bad thing though. Mind you, it sure isn’t a good way to feel, but it can produce some incredible results – if you know how to use it.
Channeling Disgust into Diversity
What you’re about to read may disturb you, but here goes…
Embrace it.
Disgust is usually the rock-bottom spot where you’re finally ready to do some changing…of your attitude, of your expectations, of your approach. Most of us have to get to that place before we’re willing to make a change.
Until we’re there, it’s just too easy to tell ourselves “I’m just out of rhythm” or “this market is just acting strange” or “things will get back on track any day now.” Uh huh. What if the market stays strange for a while, or what if you don’t find your ‘rhythm’ quickly? You’re in big trouble, right?
Perhaps the greatest opportunity born out of disgust is that of diversity. When we hate the results we’re getting, we either continue to get them (by not changing), or we expand our horizons and learn some new approaches. Those are the 2 choices we have.
When it comes to trading, those new approaches might include different trading methods we’ve heard about or considered, but have not yet committed to. Or it might involve different timeframes for trades. When day trading isn’t offering much, shifting out to a swing trading timeframe can often make all the difference in the world. That’s why it’s so important for us to diversify as traders.
Dual Benefits
When you shift your approach from one which isn’t working to another method, you’re going to see some short-term changes in your results. Often times that’s going to mean instant improvement, which is quite refreshing. It brings you out of your funk almost immediately, so your attitude is also likely to be better.
But what’s even better is that as you learn another method, you’re that much more equipped down the road to make a shift when conditions call for it. Because you’ve now recognized what isn’t working, and which conditions prompted a change, you’ll be able to identify similar shifts the next time around, and you’ll now know better how to adapt. Win/win.
So if you’re currently feeling rather disgusted with your trading, I’m aware that it’s no fun – I’ve been there too. But if you want out of that mode, then don’t wallow in your sorrows any longer. Get on the move and start finding and employing some new styles and strategies – the ones you’re using are costing you too much in capital and confidence to continue using them right now. Keep them in the bag for later, but channel your disgust into a desire to develop new approaches, and you’ll be glad you did.
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Prepare for Anything
January 21, 2010 at 7:00 am
On several occasions in recent years, I’ve taken a spring trip with my dad and some friends to Arizona to play golf for a few days. I love the desert, and it’s fun to spend some time with the guys and make a few birdies (let’s not talk about the bogeys!).
Around Scottsdale, and particularly to the north of town, it’s quite common to see single-engine planes buzzing around the skies. Maybe it’s the great weather and silence of being on the golf course that made me notice them, but they seem to be everywhere. They’re pilots in training, and they’re starting small before they work their way up to something larger (like perhaps, something with more than 1 engine!). I respect that approach, and we’ll touch on that shortly.
But one thing that really caught my attention is that they actually shut off their engines – on purpose – over and over. What? It’s one thing to hop in that little thing with what sounds like a lawnmower motor on it, but hey, it’s no glider. Why would they do this intentionally?
They’re creating stall conditions and learning to recover. Learning to purposely manage a malfunction in a controlled environment (well, partially) helps them avoid panic should it ever happen unannounced. Eventually, they’ll become the kind of pilot I wouldn’t mind flying with.
From One Cockpit to Another
As a trader, sometimes that malfunction happens without warning. Sometimes right after an entry is made, the position rips right against you, perhaps even before you’ve had time to place a stop. Sometimes it’s an overnight trade which has unexpected or unscheduled news hit which causes the stock to gap against you, perhaps even beyond where you had intended to exit in the event of a failed trade. It’s painful and shocking, and more often than not, it results in panic for the untrained trader.
So how do you deal?
It’s almost impossible to mimic the emotions that go along with such a situation, but here are a few simple things you and I can do in order to avoid panic.
1. Expect it to happen. That doesn’t make us negative thinkers, mind you, but rather traders who are mentally prepared for anything – including the worst-case scenario. After all, if we’re prepared to face the worst, what could possibly cause us to panic? The point here is that through logical thinking as well as visualization, unexpected events and adverse moves can be mentally rehearsed to the point that when it does happen, we’re focused on the solution rather than the problem.
2. Keep a level head. By doing #1, we’re freed up to maintain our wits. Throwing a temper tantrum or freezing up entirely is only going to make it worse. The deer in the headlights stands motionless (at least here in south Texas), which means it’s up to the car to change course if something awful is to be avoided. Don’t be the deer – you can’t base your protection on hope that the stock will change course for you. Cooler heads will always prevail, so exercise self-control when you find yourself in a sticky situation and your mind will be available to strategize.
3. Expect to survive. Trusting that you’ll be alright in the long haul will help keep things in perspective, just as they should be. What might feel like a catastrophe to the inexperienced trader might be a little unsettling to you, which is something you can absolutely recover from. At the worst, it’s one bad trade out of your next 1000 trades, so consider it a spot on the windshield to look beyond rather than something worthy of doing more damage to you than it already has.
4. Never allow one trade to be too important. This of course takes into account position sizing and position risk, because the financial hit is the one that comes first. Putting on trades which are larger than they should be is nice when they work, but when they don’t, look out. Staring at a loss which is bigger than you’ve faced before will bring instant regret. Similarly, trading within one’s limits also means that no trade is ever emotionally too important. The aftermath which follows a big loss can be more emotional than financial, so walk the line carefully when choosing position size, and you’ll avoid a tailspin.
The market will dish out surprises from time to time, no doubt about it. Train yourself to expect it, and mentally rehearse some ways you’ll respond when it happens. You’ll ultimately feel as though you’ve been there, and your second reaction (following ‘oops’) will be a remedy rather than crippling anxiety and fear.
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
How to Lose Like a Winner
December 15, 2009 at 1:48 pm
I recently heard that in relationships, you can be happier if you choose to accept the whole person. The idea is that instead of trying to weigh everything you like vs. everything you dislike, accepting them as generally positive is a better decision. Thankfully, my wife does that for me, looking beyond my numerous flaws and allowing my positives to overshadow them.
If you stop to think about it, this is a pretty good way to measure everything and everyone in our lives. Staying objective about ‘it’ lets you recognize that overall it’s a positive thing.
The successful trader is no different. He looks at his overall trading operations for a given timeframe, and if the profits are there, then the mission was accomplished.
That’s not always an easy thing to do. In fact, I’d suggest that your inability to view your trading in that general light could put you in the popular camp of those who can’t cut it in this game. It’s much more natural to allow specific trades to stand out and influence our line of thinking. It can result in a directional bias, a pet stock, or a slew of other closed-minded patterns of thinking – all of which can lead to the destruction of one’s account.
What we want to do is to win. And if winning is defined as overall profitability, then winning will involve some losses along the way. You and I have to be able to lose like winners!
Here are 4 ways you can do that:
1. Allow no single trade to define your trading. Dwell on it for a short time if you must, but then move past it whether it was a big win or a disappointing loss. You might have put a lot of preparation, concentration, and capital into that one great idea, but it’s over now. Either pat yourself on the back for a trade well done, or brush yourself off and get back on your feet. Think about how you can use it to your advantage. Maybe you fattened your account with the profits from it, or expanded your comfort zone because of it. Great. Get back on your horse.
2. Win the war, not every battle. Put on individual trades which have sensible risk/reward, but place emphasis on your overall operations rather than each individual effort. Basically, see the forest and not just the trees! Accept that there will be some some losing trades, perhaps frequently, depending on your timeframe, and aim to overcome them with larger or more frequent winners. The point of taking this step is not to go to battle with every trade due to the mindset of having to be correct. Accept it when you are wrong, and no single ‘battle’ will ever sink your ship.
3. Cast fear aside. Fear is arguably our biggest enemy in trading. It can cripple you if you allow it. This is manifested in ways like trading so small that a win or loss has virtually no impact, or maintaining stops so tight that the stock isn’t able to fluctuate naturally without shaking you out. Those who spiral down the drain of losing are often times gripped by fear. Don’t allow that to be you. Maintain a healthy respect for the market, but don’t be afraid of it.
4. Learn from every loss. You’ve paid the tuition, so you might as well get the lesson! This makes a loss something you can still gain from, and every winner does it. Always seek out ways to increase your trading knowledge, whether through specific education like a stock trading course or simply picking up on subtle behaviors in price action that are starting to surface. Is the market starting to change, or are you refusing to avoid methods which aren’t paying off? Keep an open mind, always look for the lesson, and let the long-term losers be the stubborn ones.
Lose like a winner this week, and you’ll have more to show for it.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Taking Risks
August 26, 2009 at 1:10 pm
It’s a known fact that in the market, you get paid to take risks. We all know that, right?
But are you getting the proper rewards for those risks? Are you taking the most appropriate kinds of risks? And perhaps most importantly, do you recognize the extent of the damage which can be done when you take on risks which are larger than you can handle?
I’m in the midst of re-reading a great book on risk right now (I’ll put up a post before too long about it, because it’s something you should read), and it’s got my wheels turning. I’m reconsidering exactly what is risk, how much I should be taking, and why I need to embrace it.
Before sharing too much about the book, let me share with you a couple things which are on my mind right now, and I’ll lay out the rest in a later post once I’ve finished the read.
Defined Risks are the Best Kind
Option traders often refer to their ‘max risk’ on a given trade, because on some strategies they are able to truly limit their downside risk to a set amount. If they’re long premium, the most they can lose is 100%, for example.
But an equities trader like me needs to think in terms of a different kind of risk factor. Yes, I could buy 1,000 shares of XYZ at $20 per share, and my max risk (in terms of capital outlay) would be $20,000. But that’s not realistic risk, because it’s so incredibly unlikely that stock is headed to $0 – especially over the course of a few days when I’d expect to be in the trade.
Instead, it’s important when trading stocks to think in terms of max $ risk if the trade fails (not if the underlying company fails). I touched on this concept of dollar risk per trade earlier this month, but let’s look a little closer at it. If I know my entry and I can designate a stop loss on the trade, then barring any drastic circumstances I’ll be able to exit at or very near that stop should an adverse move occur. That’s the risk I want to be familiar with. The kind of risk that says “if this trade doesn’t work out, what do I stand to lose?”
That’s very different from simply looking at every trade from a capital outlay perspective. It’s a major shift for some of you to start thinking this way, but it can also make a major impact on your trading to implement it.
Know Your Exit
Making what could turn out to be a difficult decision before getting in the heat of the moment can be the most important part of your trading plan. It’s one thing to hunt for entry after entry, locating breakout levels and spots where trend lines could get broken, but it’s an entirely different thing to know where you’ll look to exit that same trade, whether it moves in your favor or not.
I’ve said before that a good trade is usually a planned trade, and that definitely involves knowing your exit from the outset of the play. So before you place that order to enter your next trade, decide on where you’ll get out of it. Set a bracket order or jot it down, or at least verbalize it somehow! That’s still better than thinking you’ll get around to it later. Don’t procrastinate – decide on an exit.
Have a Goal
There is no reward without risk, and there should be no risk without reward. Knowing this, there’s absolutely no reason why each trade shouldn’t have some favorable objective associated with it, so set a goal for each trade. A realistic one that could quite feasibly be reached during the course of the trade.
Perhaps you’ll set a hard target and book profits once that level is reached regardless of how strong the momentum seems at the time. Or perhaps you’ll plan to book partial profits at intervals along the way.
At the very least, having some idea of a level where your stock could move to is still going to help you formulate a game plan, even if you don’t choose to leave a resting order in that zone to book profits.
If you know your stop and you have some kind of upside expectation, then you’ll have a far better grasp of just what your risk is on a given trade and whether or not it should be taken.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
More on Recovering from Trading Losses
August 17, 2009 at 6:44 am
Ever been downright frustrated with your trading?
If you’ve been a trader for any length of time, I’m sure you have. There can be stretches of disappointments during which it feels like getting on the right side of a move might not ever again happen. Your account shrinks and your confidence takes hit after hit, causing you to question your desire to continue playing the game.
If it sounds like I’ve been there, it’s because I have been. Multiple times. Every time I’ve hated it just as much as the first time, but every time I’ve emerged as a better trader. No pain, no gain!
Dealing With Drawdowns
I think it’s a good exercise for every trader to know their thresholds, and to determine just what you’re willing to lose during a poor trading stretch. That’s not to say you plan on it, but rather you designate some amounts, which if lost, will prompt you to make some immediate adjustments.
That might be a dollar amount subtracted from your account highs, or it might be how many consecutive losing trades you’ll endure when a drawdown occurs. Once those flags have been raised, it’s time to shift the routine.
It doesn’t mean you entirely abandon an approach which has proven to work for you over time, but rather that you install some safety rails for yourself before the damage becomes far more difficult to repair.
Short-Term Steps for Long-Term Survival
If you’ve suffered from a recent drawdown, it’s important that you take a few steps to get back on track – both in the near term and for the long haul.
In the near term, it’s crucial to preserve whatever confidence you have left. Remember, that’s your psychological capital, and it must be protected. Take a few days away from trading, maybe a week, and just clear your head. This may sound obvious, but stepping away is the best way to stop losing! Discouragement leads to some poor decisions in trading, so come back in a few days to resume trading after some of the irritation has subsided.
When you do begin again, cut your position size down to an amount which is insignificant, whether win or lose. You want to gain some confidence in trading well once again, making some good choices without the influence of recent losses. P&L becomes an afterthought at this stage.
Focus on the method, on making good trades which work, and then gradually increase your trade size so that the profits return. The first few trades might not grow your account, but they can greatly aid your thinking process by lifting the pressure of “making it back” and then you can get to that shortly thereafter.
Staying in the Game
A string of losing trades is no fun – downright frustrating, irritating, and bothersome. But the idea is to limit the losses when they do come (and we know they’ll come, that’s just part of trading) so that we are still trading when the best opportunities come along.
That’s how my method is. I equate it to a poker player who loses small, hand after hand, folding to surrender antes before finally sticking with his bet when a good hand comes along so that he can win a pot. Lose small, lose small, win big – that’s exactly how trading must be. How you choose to respond to losing will make or break you.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
