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Maybe these ideas could work with someone who doesn't need to trade. i.e. a multi-millionaire already trading .001% of their account or such. But with most who are trying to build their account, allowing such big losses offers little practice time before their live account is depleted. But I guess and heard having severe losses is an experience every trader should have sometime in their trading career to realize and remember how painful a big loss is so as to hopefully not get into similar circumstances again.
Probably many have heard of this method. Averaging out of a losing trade. Instead of having a primary TP target and secondary target and so on. Have a primary S/L where one takes off part of their stake, then a secondary S/L where more is taken off and so on. This would be practicing compromising and acceptance and practicing "managing" a loss in some way, for those having trouble taking a loss and having trouble sticking to a stop loss.
Can you help answer these questions from other members on NexusFi?
What I really mean is working your way out of drawdown, but in some cases it can also mean a single badly losing trade. Or if you have taken a large loss on a single trade.
As long as you are aware that a fixed stop loss does not work all the time. Depending on market conditions, it can result in just as large a drawdown as a single badly losing trade. You got to be careful about fooling yourself with small individual losses. Those can add up just as quickly.
As long as this allows for dynamically adjusting your stop loss distance to reflect changing market conditions.
The problem is, if you trade long enough, you are inevitably going to be hit with a big loss or with a prolonged series of small losses that adds up to a large drawdown. Make sure you know how to recover from it (work your way out of it) before it actually happens.
Something to think about: are your lousy trades occuring under normal market conditions? Likely, the answer is "yes" because, by definition most market days are "normal."
What are you going to do if you are caught in the market during a very abnormal event?
The thing is, you don't have any control about when it will happen to you. No matter how many precautions you take to avoid those circumstances, one day you will be blindsided in a manner you didn't foresee.
Recommending someone extends their losses as a way to gain experience in dealing with them - rather than sticking to the SL, getting out and reevaluating trading method, or aim for being on the winning end, is so outlandishly irresponsible and non-indicative of an "advanced" trader that wow - not cool.
I spelled out the best euro and silver trade of '12 on here so saying I'm not being genuinely nice guy in calling you out is silly.
I appreciate your opinion. Obviously I don't agree. I view it like this: a trader must be able to convince themselves that they are able to recover from any trading situation they may possibly encounter. The best way to do this is to put yourself into that situation, either on paper (simulation) or with real money - because it's going to happen to you someday, whether you like it or not, and it is going to happen with real money, not for pretend.
You probably object to the use of real money, which is fine, I understand that. At the very least you ought to be doing it in simulation. But real money means real psychology. Paper money means paper psychology. for most people there's a big difference. In fact that difference can be so great as to make anything you do in a simulated environment go out the window when you are trading for real.
Would you agree that the emotional aspect of money management comes much more into focus when real money i is on the line?
Do you believe that recovering from losses is a necessary skill?
If you answer yes to these questions, then how would you suggest traders prepare themselves?
By the way, my suggestion to use real money was made for experienced traders because, presumably, an experienced trader knows how to recover from it (or at least believes they do.)
Tell me, how confident are you in your own ability to recover from unexpected losses? If you take an unexpected 15% drawdown to your account, do you know you will recover from it, or will it suprise you so much that it throws you off balance and makes you question your trading strategy?
This thread is a wake-up call to get you to rethink what do you really know about trading and losing. If the idea of deliberately losing money scares you, then you need examine why. Do it for yourself, not for anybody else. Its your trading, your time, your energy and your money that is ultimately on the line. Do you truly have a sound trading method? Do you view losses (even big ones) as a natural part of trading, or do you view them with fear? Have you prepared yourself to cope with Limit Moves? If not, why not.
If the thought of deliberately losing money - which means, dis-empowering the markets by taking control away from the market and putting it in your hands - scares you, then how are you going to feel when the markets make you lose money against your will?
Correct. 99% happen on normal days when I am bored or distracted. I then have to make up for them with a couple of sensible trades. This is tedious but unrelated to the loss preparation ideas. Just another part of the constant psycho makeover that is required every day. Next one is learning to hold longer since why make great entries and take 10 points when its usually worth 50. Ho, hum. Dark frown.
Happens anyway in fast market, I use UK spread-bet services and stops can slip, just a fact of life unless I pay a small premium for a 'guaranteed' stop, something I sometimes do. I tend not to trade at all if the day feels abnormal or extreme, although I accept some events will at some time hit all of us in the circus casino in which we currently play so keep my live account size small and my trade size 2%.
Anyway, I want people to think about loss, and the difference between losing in normal market conditions (which is a natural part of trading) and in abnormal limit move conditions (which is very bad) and how to protect yourself. You don't need to agree with my suggestion, you can think what you want of me as a poster, but as long as you start thinking more about the nature of losses and losing - and ultimately how to best emerge a long term winner in your trading - then it is a win-win.
I want everybody to take a realistic view of trading so that you maximize your long term chances. I want you to win in the long term. I want you to be net + P/L at the end of your trading career.
