How To Recover After Bad Trades?

By: ispeculatornew
Date posted: 10.17.2011 (5:00 am) | Write a Comment  (2 Comments)

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It happens to all of us, you start trading either with a long term vision or shorter term trades such as our long and short technology trades. Then, after a few good ones, things turn sour. It doesn’t have to last years or even months. Sometimes, just a few consecutive bad trades are enough to create major confidence issues. Why? I think we’d all agree that trading psychology is a huge part of any success, especially over the long term. We are all different and while I have been fortunate in avoiding big losing steaks in the past few years, there have still been times where a couple of losses got me rethinking my entire strategy.  Over the years, here are some of the strategies that I have used. They are clearly not perfect and I’m sure that I’ll find more over time, but these are mine, I’d also love to hear about yours!

Take Some Time To Cool Down

Personally, I know that the worst thing that I can do is drawing any type of conclusion right after it has happened. Trading is emotional and acting right after a bad trade occurred would rarely turn out well in my opinion. Some like to trade right away, often risking more in an attempt to “win back” those losses. That is rarely a good idea. If you have been a regular reader here, you know that I usually open new trades on Monday’s following trades being closed out. There have been a few exceptions, often following a few bad trades where I wanted to take an extra week to think it through.

Do Not Panic

Unless you bet the farm on one trade, which would be plain stupid, you will live to trade another day which is what it’s all about anyway. You will get a chance to work on your trading, to improve and make some better trades in the future.

Determine The Cause Of Those Bad Trades

It’s always interesting to try to find out why a trade did not work out. Interesting as in VERY CHALLENGING. There are so many errors and it’s always tempting to credit our good trades to our “smart trading ability” and bad trades to everything except our ability:)  And I should mention that you should also do this on good trades also!

Are The Same Mistakes Occurring Over and Over?

The most important thing is to notice if some of these causes are occurring over and over and to make adjustments to those that are. I personally have found two major causes that were causing issues in my trading, both that have been discussed on my blog. First, I failed miserably in shorting what seemed like overvalued stocks that had strong momentum. Second, I had issues trading towards the end of the year because I was going after short term gains (since I close out open trades at the end of December). I did make adjustments to both of those and thankfully, that has helped tremendously this year.

Avoid Getting Too High Or Too Low

It’s always tempting after a few good trades to start getting overconfidence, to start bragging to friends and family about your success and start doubling down. DON”T DO IT. Like so many other things in life, you will end up in a emotional roller-coaster. Try to stay grounded no matter how well or how badly things are going. Trust me, you are likely to have some glorious moments but also some very difficult ones from a trading perspective, there’s no need to take your whole life onto such a ride.

Get Back At It

Taking a few days break can be a good thing because it gives you perspective. Not trading for several months is usually not such a great idea. If you trade over several years, you are likely to have several good streaks but also a few more demoralizing ones.

Don’t Try Too Hard

It becomes tempting to give extra effort, time or thought to trades when you get back it. Don’t. Trying too hard is likely to only get you into more trouble.  Apart from the few elements that you might decide to change in your trading strategy, you should get back to your business as it was. Being more or less aggressive or analyzing a trade for days before opening it will only make it more difficult.

What Are Your Methods?

I would love how you react when a few bad trades occur and how you’ve managed to get back your confidence.

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  1. Comment by Jack — October 17, 2011 @ 2:11 pm

    I’ve found the best thing to do is have an entry and exit point before entering into any position. It will help you keep your winners and possibly avoid losers.

    Alter your parameters on significant news, i.e. company is being bought out, accounting irregularity, CEO resigning, etc. Otherwise, if your plan is well-thought out, stick to it.

    If you do this, and the trade still doesn’t work out, it is better than flailing around and/or reacting to every single headline.

  2. Comment by IS — October 17, 2011 @ 5:28 pm

    @Jack – Could not agree more about the importance of entry and exit points, I am a strong believer!

    And yeah, no need to act crazy and desperate!

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