Warrior Trading Blog

Red Day Recap -$2,064 Getting Too Aggressive

Red Day Recap -$2,064 Getting Too Aggressive

Today I hit my max loss and I did it in the most frustrating way possible! I’m going to talk about my trades today and what I could have done to minimize the losses.  Most traders only talk about their big green days, but I think talking about the red days is equally important.  You guys need to understand that losses happen.  Part of trading is learning how to get good at losing!  After all, even the best traders are going to be wrong 30-40% of the time.  Most traders trade between 60-70% accuracy which means we experience loss on a regular basis.

I recently sat down with one of our students and he told me in that in his career he was taught you can NEVER be wrong.  He made a career as a pharmacist.  And he’s right, as a pharmacist, you can’t be wrong.  After a full career he’s having a hard time transitioning to a job where 70% accuracy is acceptable.  He’s having a hard time feeling okay about being wrong.  One of the things I told him is that he needs to practice losing and train himself to be comfortable with the experience.  The best way to do this is to set really tight stops on trades.  If you set 8 cent stops, sure, you’ll get stopped out a lot, but you’ll quickly realize it’s not a big deal.  When you average loss is only 8-10 cents, as long as you make 20 cents on winners you’ll have a 2:1 profit loss ratio and anything about 33% accuracy will be profitable trading.

 

 

Day Trading is not about being right 100% of the time

In short, trading is not about being right 100% of the time, it’s about minimizing our losses.  I did a great job of that today, until my last trade.  I started the day with 3 small red trades and was down about $300.  After those three trades I started feeling frustrated because on one of the trades ($CETX), I was actually up over $3k but didn’t take profits on it!  It ended up turning into a $150 loss.  I thought it had the potential to be a big winner and so I didn’t want to sell when I was up 30 cents with 10k shares, I was thinking 50-60 cents was the potential.  It came back down to breakeven, and I threw in the towel.

Imagine a hiker who is really really hunger and is trying to catch a bird.  After missing twice and then nearly having the bird and letting it slip between your grasp you’ll start to feel frustrated and frazzled.  I think this is how I was starting to feel….then along came $OPGN.  I jumped into this momentum stock at 1.30 with 2500 shares.  Suddenly I realized I had 25,000 shares and I had added an extra 0 to my order entry window.  I was almost instantly down $3k before I was suddenly up $3k.  I sold the position and made $2k in profit, but after all, I never intended to have that much size.  Moments after I sold the stock ran up about 50 cents which would have given be over $10k in profits, and the frustration continues to build.  That trade put me up about $1.5k on the day after commissions, and it was a fairly lucky turn of events considering how the day started.

 

Emotional Trading vs Smart Trading

My next trade was CERC.  I saw it spiking up quickly, and after having just fumbled on $OPGN and sold for $2k vs the $10k potential, I wanted to jump into the next momentum stock as quickly as I could.  I took 10k shares and was immediately up about 10 cents, before the stock quickly reversed and put me down 15 cents.  At this point I realized if I took the loss I’d be breakeven on the day.  Instead of press the sell button, I held, waiting for the first 1min candle to make a new high.  When that didn’t happen, I sold and took a 30 cent loss -$3600.  This was an emotional trade.  I jumped in with too much size out of frustration, and then I stubbornly held too long.  As an individual trader, I can never strong arm the market.  The market will always win, and today was a reminder that nothing is more important than discipline.  The $3,600 loss was avoidable.  While I’d like to say this will never happen again, that’s probably not realistic.  Trading, like many careers, requires us to push us to our limits and sometimes we lose control.  It’s important to have fail-safes for when this happens such as max loss on your account.  While I’ll close today red, it only gives back 1.5 days of trading.  I will live to trade another day, and I’ll look for redemption tomorrow if I can find an A quality setup.