Warrior Trading Blog

Red Day Recap & Learning From Mistakes

Red Day Recap & Learning From Mistakes

I certainly don’t like having to do 2 red day recaps in 1 week.  Today I gave back 1/2 of my profits from yesterday.  Once again, it feels like 2 steps forward, one step back.  Has anyone else felt that way with trading?  If you have, you better get used to it!  That’s what trading is about.  In fact, that’s what almost every single equity curve looks like.  A few steps forwad, a few steps back.  The difference is the size of the steps, and of course, is the overall trend up or down.  The good news for me is that the overall trend has been strongly up in 2016. I’m sitting just over $210k in trading profits but today is a small step back.

 

Hitting Max Loss on 1 Trade

Today I’m sitting with a $3,154 loss today on 1 trade.  I stepped up to the plate, tried to swing for the fences, and got a strike out.  In hindsight, I wish I had sold the trade sooner.  I was up $1800 on the position before it dropped quickly to breakeven, and then into the red.  I had an opportunity to stop out breakeven, and instead of doing that, I ended up taking a loss.  When stocks drop quickly I’ll often try to get out by selling on the ask.  I did that in this case, but with 10k shares, I couldn’t fill anything on the ask because there were simply no buyers.  I had no choice but to hit the bid, and when I did, the price dropped even more because it was a large order to put into the market.

 

Condition Yourself to Experience Loss

Loss is something every trade will experience at one point or another.  If you haven’t experienced it yet, you probably haven’t been trading for very long.  Over the years I’ve been able to condition myself to experience loss and not get too upset about it.  Today isn’t a big deal for me in terms of $ loss.  I’m still green on the week and I know I can bounce back with a good trade tomorrow.  What frustrates me is when I break rules, such as holding a loser too long.  When I hold losses too long it throws off the profit loss ratio, and it really cuts into my profits.  I think this tendency to hold onto losers is very common among traders.  I usually don’t have this issue, but when I trade with larger size the emotions seem to increase.  With 10k shares I know when I hit the sell button I will almost definitely be below my max loss.  It only takes a 10 cent loss.  In this case, I decided to wait a moment for the first 1min candle to make a new high.  Unfortunately the price dropped so much while I was waiting that I realized I needed to just throw in the towel.

 

Making Quick Decisions Under Pressure

Trading highlights the requirement to make decisions very quickly.  I do well under pressure and I often trade better when I have to react quickly.  Today I paused, and that ended up costing me an extra $2k in losses that I probably could have avoided if I just threw in the towel sooner.  Today is a reminder of one the lessons we often teach when trading: Breakout or Bailout.  If you get into a stock expecting a breakout and it doesn’t work, bailout.  No questions asked, just get out of the way.  Traders who were smarter and faster than me today easily walked away either green or breakeven on the same trade I lost on.  It shows how easily you can be on the right side or the wrong side of the market.  Today I was on the wrong side, but I’ll be excited to get back on the horse tomorrow morning!