All Entries Tagged With: "Trading Psychology"
Lessons from My Biggest Trading Loss
May 28, 2009 at 9:58 am
The trading has been really, really good lately. I’ve been fortunate to nail some nice moves for both day trading and swing trading timeframes, which of course is always fun.
But in order to recognize and appreciate the good times, one must also go through some periods of poor performance. You have to struggle, and fight through the pain. Expensive lessons get learned, and thank goodness, they can stay with you for a while.
That’s what I’m here to tell you about in this post.
I want to show you some lessons I learned from the biggest trading loss I ever took, and hopefully you’ll benefit from my mistakes. After all, standing on someone else’s shoulders is the best way to look forward.
Setting the Scene
With summertime having arrived in 2004, the usual conditions were present. That means lighter trading volume – and whenever that’s the case, I tend to prefer short selling over buying. (I view volume as the fuel needed to propel a stock higher, so when it’s present, I realize bidders can simply disappear and the stock can slide without needing high activity.)
Having noticed a deep correction in NVTL which shaved off about 1/2 its value in just a few weeks, I had the stock on the radar and was waiting for a good setup. No harm so far.
It had begun a lazy, light-volume bounce off its correction low, which of course left me skeptical. I watched for the pace of the bounce to slow, and once it did, I started a position. That was on June 1 as it attemped to roll over slightly, but it was merely an attempt.
The following day, NVTL made a new recovery high, but I stayed in the position. Mistake #1. As soon as the bounce resumed, that was grounds for dismissal, but I stuck around in a stubborn fashion. A week later, NVTL was again on the move, and I found my P&L turning deeper red by the day.
I was wrong, and it hurt. So I did what any trader in the midst of breaking trading rules would do – I added to my position. Mistake #2. Now I’m in a bad trade and I have too much of it. Why? Because I needed to be right. Mistake #3.
StockFinder Chart courtesy of Worden
Long story short, after adding a couple of times on the way up to improve my basis, I ultimately drew a line in the sand which was crossed 3 weeks after my entry. I blew out of the trade… stunned, bruised, and yet relieved.
Ultimately NVTL corrected, but I would have had to hold the position for another month and endure another 10% against me before that happened. Even then, I only would have been able to exit at breakeven.
It was a nasty loss, and it angered me to have allowed it. Now 5 years later, I still shake my head at the series of mistakes I made, but it’s a great reminder to me of what can happen when I allow myself to break my rules.
Reminders & Takeaways
- “Paper” losses are very real. Many try to fool themselves into thinking that because a gain or loss hasn’t been realized, that it should be viewed differently. Wrong. If you’re underwater in a position, you’re losing whether it’s a closed or open position.
- Adding to losing trades is a recipe for pain. If you’re already in the hole and you’re already in the size of position you originally intended to be in, you stand to dig a deeper hole and cloud your judgment even more. Don’t add to a losing position when it’s a hail-mary effort at escaping a bad trade.
- Accepting a big loss can bring about some needed relief. For one, you’re ending the loss – it can get no worse. That’s a big reduction of stress and distractions from your other trading efforts, which is a huge benefit. You’re also accepting that you were wrong, and creating some closure which mentally helps you move on. There’s no substitute for a clear head when trading, so take it. Further, there are few things worse than logging into your trading platform and staring at a giant loser day after day.
- Being early = being wrong. This trade ultimately moved back in the direction I thought it would, but not until it had far exceeded my “uncle” point. Just goes to show that the market can continue moving against you for longer than you can handle it sometimes, so it’s never worth arguing with.
If I could get away with only talking about my great trades here, it might be more enjoyable for me, but you’d take less away from it as a reader.
And the reality is that I lose on plenty of trades. But there is much to be gleaned from glancing in that rearview mirror, both for me and for you. That’s how we get better!
Sometimes it comes with a grin and sometimes with a grimace, but it always offers valuable lessons to gain from. I hope you’re willing to do the same with your own trades.
Are you watching the Trading Videos over at TheStockBandit.TV?
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Excuses are a Waste
May 5, 2009 at 11:04 am
As the producer of a stock newsletter for the past 5 years (wow, time is flying), I get a lot of email.
Some of it is from subscribers, and some of it is from people who are ‘tire kickers’ and haven’t decided yet to take control of their trading. They want to know if what we offer can get them to the next level.
A response is always provided to them of course, but it’s not always what they want to hear. The deciding factor is their attitude.
You see, in their emails they often times want to air out some garbage and tell me a story. It goes along the lines of “I used to be good at this, then I hit a rough patch and now I’m lousy. Can you fix me?”
And although their ‘story’ might be factual, that rough patch probably isn’t what’s holding them back. It’s their reliance on it. They lean on it like a crutch, because it gives them an identity, a safety net to fail into – for now. They have to stop relying on that and get back on track.
There will always be people like that, and neither I nor anyone else can bring about a change in them – they have to do it for themselves. They have to move beyond that mindset and toward something they really want.
The “I’m losing and it isn’t my fault” attitude is an excuse, and it’s not going to get you anywhere. A lack of success can’t be blamed on circumstances.
I know because I’ve had that attitude.
A few months ago, I was putting together an educational course for people who want to learn trading. It was a big project and it brought about some demands on my time which previously weren’t there. What used to be free time was replaced for a little while with work on that project, and so my situation was temporarily different.
Out of my routine, I fell into a trading funk for a few weeks. I was wrong a lot and irritated regularly with my trading. And I told myself it was because of that project. When asked by friends how my trading was going, I’d say “it’s been better, but I’ve been really busy with the educational course” – as if anyone cared. As if that project were the reason why I was struggling with my trading.
Nonsense.
Once I stopped relying on that excuse and decided to get a grip – and it is a decision – I was finally free to get back to the winning ways I had been missing. I wasn’t being driven by every little tick which might have gone against me, and I wasn’t as afraid that open profits might quickly disappear. As a result, my trading improved rapidly.
But it all began with my attitude.
So here’s the thing… If you’ve got loser’s limp and you find you’re frequently making excuses for your trading results, consider this a wake-up call.
That attitude is leaving you stationary like a turtle in mud (no, not that kind of Turtle), and you’re going nowhere fast. Get back on track mentally and move toward the attitude you know you should have.
The past is there to serve you, not hinder you, so take what you can from it and move forward. Once you’re thinking better, I’ll bet you start trading better too.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
7 Trading Lessons from the Masters
April 13, 2009 at 1:58 pm
As a trader who loves my job, I find it difficult to witness any big event without looking for some parallels to trading. The sports arena is one of those places, and it doesn’t take much of a stretch of the imagination to recognize frequent lessons that are applicable to trading.
Just about anytime someone’s talent or emotions are being tested, you’re likely to also gain some insights which can help your trading.
This past weekend in watching the Masters tournament, I couldn’t help but notice a few things about some of the players. Here are some of the things which caught my attention and the corresponding lessons…
1. Some days you don’t have your best game, but grind it out anyway. Tiger was a little off all week. He verbally discussed it, but it was also easy to see if you’ve watched him at all when he’s at his best. But in spite of not having his “A” game, he chose to grind on every shot and concentrate as much as possible. He came up a little short, but he had a chance on the back 9 on Sunday – which he admits is all he ever wants. What if you’ve done the same all week with your trading by the time Friday afternoon rolls around – do you think you’d be satisfied?
2. Stick with your style and be confident in your approach. Jim Furyk isn’t a long hitter compared to the guys he’s competing against, so he of all people is not going to overpower Augusta National. He had to lay up on some of the par 5’s, but he kept to his strategy and it put him into the mix with a chance to win come Sunday. Waiting for your setups to come along as a trader means not attempting unfamiliar approaches or those which don’t work for you. Trust your method!
3. When you’re hot, ride it – and enjoy the moment. Anthony Kim at age 23 is just one year older than Nick Adenhart, the Angels pitcher who died tragically last week. Recognizing the similarities of not only their ages but careers as professional athletes, Kim was touched by Adenhart’s death. Thinking of how brief life can be, Kim decided to enjoy himself and put life into perspective. After reading about Adenhart on Friday, Kim went out to set a Masters record by making 11 birdies in a round. He got out of his own way and allowed his talent to take over. When you’re reading the market well and your trading is on track, trade a little bigger and see what happens. It’s only trading.
4. Take your lumps with maturity. During the second round on the 15th green, Padraig Harrington addressed a short birdie putt when a gust of wind moved the ball. In accordance with the rules, he replaced the ball to its original position with a 1-stroke penalty, and made his par putt. Having won the previous 2 major championships and having been in good shape on the leaderboard Friday, Harrington would have had plenty of reason to be upset or shaken. But he went on about his business, not allowing a bad break to rattle him. When a good trade suddenly reverses on you or unexpected news costs you money, accept it like a mature trader. Keep plugging away with unflappable confidence.
5. Embrace opportunities with confidence. Kenny Perry has been close before in a major, having been beaten in ’96 in a playoff during the PGA at Valhalla in his home state. He’s won a number of times on the PGA Tour, and worked himself into the lead during the Masters. Success would have meant he’d become the oldest winner of a major championship, as well as his first major win. Facing the opportunity which Sunday brought along, Perry knew he’d either succeed or fail. And he relished the chance to walk that fine line. Trading afraid or scared won’t bring the success you crave. View every chance as an opportunity to build greatness, and face it head-on.
6. A little bit of nerves are good. Chad Campbell found himself right in the mix all week as he searched for his first major victory. When asked by the press about his nerves being on such a big stage and facing such a huge opportunity, he openly admitted that he had been and would be nervous. He also noted that having some nerves are a good thing, that they show you’re intense enough to care. When you find yourself nervous over trades, is it because it matters to you or is it because you’re afraid?
7. Don’t let a poor start steer your day. Angel Cabrera struggled early on Sunday as he found himself playing in the final group. At 1-over par through 5 holes, he was playing worse than everyone else on the leaderboard, losing ground and clearly uncomfortable. But he settled himself down and played solid for the remainder of the day, finishing with 3 birdies in his last 6 holes to get into a playoff – which he eventually won. Allowing your first few trades of the day or the week to define you isn’t the best course of action. Even if your year is off to a poor start, you can still salvage success. Stick with your game plan and trust that your experience and effort will pay off. Your attitude is a weapon – either you hurt yourself with it or you use it to your advantage.
I hope your trading week is a great one!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
The Importance of Losing Small
April 7, 2009 at 2:05 pm
Losses are inevitable, but small losses are easily overcome.
I put that first because if you don’t read anything else here, I want you to be sure and see that.
In fact, that one statement could be considered the key to my trading. I remind myself of it often, and when I’m staying disciplined, I am able to see it in action.
Take Monday for example. I took several trades…7 to be exact. I made money on only 2 of them (no, it wasn’t a great day), and yet my net P&L was only slightly red. Just a little bit negative – that’s all. It was a down day for me, and yet it was about as painless as they come. A minor loss. All because I was able to recognize quickly when I was wrong, and immediately focus on damage control.
The trading landscape has changed dramatically just in the past year. The market is moving differently, the stocks which are in focus are a different group, and there are even some new fees and rules making their way into the fray. Nonetheless, there is still one constant: the trader who is able to lose small is able to stay in the game. He’s able to survive, which means he’s able to profit. And that of course means he’s able to thrive.
Two Big Benefits
Keeping those inevitable losses at a minimum carries with it a pair of huge benefits…
First, when you’re wrong, the damage is far from devastating. Falling off a pony compared to falling off a Clydesdale sure makes it easier to get up and get back on that horse. And trading is all about getting back up. It’s an attitude thing. It’s important to stay in the game, and that means an occasional bump or bruise is far easier to overcome than the occasional amputation. The point is this – protecting the downside offers you a safety net to fall into. Why not use it?
Second, confidence stays high, and that’s a major factor for a successful trader. Confidence should be protected just as vigilantly as one’s capital, for it can be considered your psychological capital. Just as money isn’t easily replaced, confidence isn’t quickly replenished once it’s wrecked. Looking out for yourself by way of small and limited losses means you’re taking no big hits to your trading account or your psyche.
So on those days when you’re just not feeling it and you feel a step or two behind, be quick to recognize it and live to fight another day. Keep the damage minimized, and you’ll be able to return tomorrow fully prepared to erase that small deficit quickly.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Always Be Prepared
February 12, 2009 at 8:50 am
Over the holidays, I encountered a door to door salesman while visiting family. He was 23 years old and his name was Mike. He was selling a cleaning product, and I mean he sold it!
Every single rebuttal thrown at Mike was overcome with ease. Sometimes those replies were educational, sometimes they were entertaining, but Mike was ready for anything. With it being the holidays and therefore plenty of time to spare, it became sort of a fun challenge to banter with him and watch his skill. He knew his product inside and out, and he proved it with confidence.
I was most impressed by Mike’s preparation. Anything we threw at him, he had a solution for it. He was great at his job, because he had made it his craft.
How Do You Treat Your Trading?
That encounter with Mike proved to be a valuable reminder to me that I’ve got to be prepared each and every day for whatever the market delivers. You do too if you have plans to pull any money out of the market on a given day.
The prepared trader doesn’t know what he will face each day, but he doesn’t have to. He can handle it. Mike didn’t know which rebuttals his customers would offer, but he still knew how to work through the situation. Hard work, persistence, and a refusal to quit when the road gets tough…these are all the ingredients for honing a skill that will pay you over and over.
Those frustrating losses, the weeks when you keep fighting and adapting – sometimes just to break even – that’s what strengthens you and becomes a tremendous source of confidence that you’ll feed on in the future. It’s the long days when you grind it out, win or lose, and you still stay after the bell to review your results and keep searching for ways to improve.
Look In the Mirror
Success in this world does not come easy, and anyone who tells you otherwise is misleading you. Whether it’s a great salesman, a world-class athlete, or a top trader, they all have one thing in common – they work for it. Even if they’re naturally talented.
So as you reflect on your trading of late, have you been adapting? Have you made an effort to determine what’s working best and what’s proving to be costly? Are you hoping that success will find you, or are you preparing in a way that enables you to go get it?
The thing about day trading the markets is that every day is gut-check time. We find out quickly whether or not we ‘have it’ on a given day or if instead we’re funding someone else’s efforts. The latter is a huge motivating factor to show up with our best as often as possible.
The first 6 weeks of the year are coming to a close, and I hope you’re making great progress. But if you aren’t, then sacrifice a little extra time to get back on top of your trading. It’ll be worth it. Put in the effort to get prepared, and commit to doing it day in and day out. That alone will make the difference.
And in case you’re wondering, yes, I bought from Mike.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Trading Attitude Goes a Long Way
January 27, 2009 at 12:39 pm
Recently I spoke with a trader who was really struggling. Not only were his results not up to his standards, but more importantly, his attitude was pitiful.
One comment he made really stood out to me about how he was approaching his trading – and how he could alter it for better results. After taking a couple of small hits in failed trades, he remarked:
Accuracy is important to me. It means everything to how i look at the market the next day and how i look at myself in the mirror at night.
I think we all deal with that to a degree as traders, and especially us guys tend to equate recent trading results with how we think of ourselves. Not deep down inside – I don’t mean that, because many of us have values rooted elsewhere – but our day-to-day mood is often impacted by our trading results.
That’s common across many professions, but full-time traders probably have it even worse since we can keep score every second of the day and know where we are and where we want to be, and often times there’s that discrepancy which causes some frustration.
That’s where huge mistakes can creep in if we let them, as we increase size or trade frequency based on our desire for quick gains rather than when the charts necessitate it.
Two Solutions
I think zooming out on the timeframe of self-evaluation is key. Instead of responding to every tick with an “I’m a genius” or “I’m an idiot” mentality (which can be so exhausting), why not look at your results from a week to week or month to month basis? The daily swings, particularly in this market, can just be too much of a roller coaster sometimes – both in an account and emotionally.
Another way to keep your attitude in check is to accept that you’ll be wrong, sometimes often. That’s not to say that you need to expect failure at all. However, as a trader, your job is to manage risk effectively first and foremost, and that means when you find yourself on the wrong side of a trade, it’s often wise to return to the sidelines to reevaluate it. Getting back in is fast and inexpensive – if you deem it necessary. Taking a string of small losses might reduce your accuracy percentage, yes, but the goal of trading is to be profitable. Too many traders tend to quickly forget that.
Check It
The aforementioned trader has already come a very long way from when we first met, ridding himself of his former style of operating primarily on hunches. Moving toward a more methodical approach has already shown him a huge improvement in his results, and it’s been fun to watch. But as with most Type-A personalities, he’s in a hurry to reach lofty goals – and I can’t blame him. He’ll get there if he will stay on track.
What’s most important at this juncture for him is that he checks his attitude on a regular basis. Just as he defers to the charts when making decisions and periodically monitors his P&L, he’s got to get into the habit of objectively gauging his mentality. When he’s patient and prepared, he’ll be far less-likely to allow his short-term results to dictate his mood. But if he falls back into the mindset of living and dying by every trade he makes, the road will get a lot longer and much more difficult.
As with so many other things, in trading it’s your attitude which can make the biggest difference between success and failure. When your attitude is in the right place is when you’re going to see the most growth – both personally and in your account.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Know Your Method
January 20, 2009 at 11:29 am
For nearly a year and a half, I’ve been blessed to be a dad. It’s been an awesome experience, and I have really learned a lot (though I still have a long way to go).
During the same time, I’ve been able to observe my wife in her role as a mother, and it’s really amazing how quickly a mother knows what their child needs! I had heard of a mother’s intuition, but witnessing it first hand really puts it into perspective.
I think mothers start out with an innate ability, a talent, to determine their child’s needs. And yet there are still the elements of practice and experience which enhance the natural talent that was there to begin with. It takes work, but the combination of talent and effort produces quite a skill.
Similarities Abound
Trading isn’t any different in that regard.
As traders, each of us start out with some kind of talent. It may be that we take quickly to reading the tape and gauging momentum, or it might be that we realize very quickly just where the boundaries of our comfort zones are when it comes to risk tolerance. Whatever it happens to be, generally it isn’t long before we start to build a method around our needs.
And what’s so nice about trading is that’s entirely possible in the market – since there are so many ways to seek out profits. We truly can custom-build a method which is fully-suited to us.
Once we get to that point, and if we want to trade responsibly, then one of our biggest obligations is to understand our method backwards and forwards. We don’t have to know everything about the market or be able to predict what’s going to happen next. Anyone who tells you otherwise just hasn’t traded much. All we need to do is keep our eye on the ball and continue to monitor and adjust the way we’re trading in order to achieve better results.
Worthwhile Effort
Just like a mother’s watchful eye on her child, our ongoing effort to remain aware of everything that’s taking place can lead to a great understanding of our method. As a result, we quickly learn when to adjust and how to go about modifying our approach whenever necessary.
What would it mean to you if you understood your method well enough that you could make small adjustments on the fly and right away improve your results? It would be huge, wouldn’t it?
As the newness of the year begins to fade and early resolutions fall by the wayside, take a stand for your trading. Make a commitment – a goal – right now to become sharp enough that you pick up on subtle changes in the trading landscape which warrant your attention.
Learn to detect when the environment is not ideal for your trading, so that you will know when to adapt or back down. And then when you see opportunities to do so, make those small adjustments so that you can stay on top rather than falling behind.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
