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NY + NY/USA
Experience: Advanced
Platform: Ninja
Broker: Optimus Futures- Rithmic
Trading: CL, 6E
Posts: 236 since Nov 2009
Thanks Given: 11
Thanks Received: 1,270
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Firstly, you have to know why you took a large loss. If your plan calls for large losses, then there is nothing to talk about. You traded your plan, you took what it gave as part of your normal trading activity ...wins and losses.
However, if the large loss was an anomaly, then the answer is easy. You made a mistake, note it, contemplate it and make sure you never make that mistake again. Write the mistake down...call it by name. Lets call it a WET WILLY. So, now make it a rule to never make a Wet Willie again. Continue to trade and follow your trading plan. GET BACK ON THE HORSE! Just remember to breathe and take it easy. There is no rush to recover. It will come as a natural occurrence of continued successful application of your strategies and trading methods. In other words, without the stupid Wet Willie moment, you would be fine. So, let it go and get going again.
However, if the large loss was not a single event, but was the final result of a period of sustained losses, then you have to examine the strategy and your activity in the market carefully. Sustained losses without some kind of cut off criteria or too big a cut off criteria will culminate in a large loss defining moment when you put up your hands in total painful agony and wail to the clouds and let loose the rain of tears. Often self doubt, regret, self pity, self directed anger and lots of other unpleasant things start to happen as we beat ourselves up.
It is important to note the difference between the two large loss types. The single event is just that. The final result is a history of mistakes, poor trading, tough market, changing market, all or some of the these things.
The culmination of sustained losses is tougher to deal with and the remedy is harder to accept. One way to resolve the conflicts is to first stop trading for a bit. You have to stop the car to fix or change the tire. This may mean examining and testing your strategy, or a part of your method. This may mean examining yourself and asking yourself some key questions. Are you going through a divorce? Did your pet die? Has your mother in law moved in with you? Did the kids go off to college? You get the drift.
At times like these, when you have suffered some pain and have already recognized the cause and scripted out the fix, is a good time to find your favorite trading buddy or mentor and just hang out with him/her while you continue. Often we need another positive voice to help us go through the recovery.
Be careful to not change too much too soon. As you examine the causes of the sustained losses, keep things as simple as possible. If you do not examine the pieces carefully, you may get the impulse to throw everything away and start over. There is no clear answer to this. If you throw everything away, then be careful to not throw away your experience. Good or bad, these experiences are what have defined you as a trader. If you were consistent for any period of time in the past, and can pinpoint a turning point in your trading where things started going south, then you may be able to address it and fix it. If you have never been successful for any consistent period of time, then throwing away your consistently loosing strategies and methods may be just what is needed.
What is most important is the key decision that you have to make. Do you want to continue? Can you continue? Are you willing to continue? Will you be able to accept starting over?
The next important decision is how will you start over? Do you take all of your experiences and make large adjustments to your strategies and like the beginner, start testing them in the market or do you just go out and buy something else? Recognize that your decisions have consequences that may not be apparent at first. Going out to find something else may put you back on that never ending winding road towards the holy grail. Or it may be the perfect thing you needed since you have never come up with something that you could trade consistently well anyway.
Regardless of what you do, remember that sustained profits is not really a straight rocket ride up. It is more like 2 steps forward and 1 step back the entire way. It is also laden with pitfalls that are often of our own making. We habitually shoot ourselves in the foot from time to time. It is human nature and normal to go through these loss periods, and to make the occasional large mistake resulting in pain and hardship. If you are trading size and trading poorly, reduce your lot size or trade a set amount of trades per day; trade a reduced amount of hours whether you make daily goal or not, or set a more realistic goal in keeping with how well you are performing.
Take up some kind of strenuous physical activity (karate), or take up a new goal orientated activity (musical instrument) to help balance and re-direct some of your focus away from the frustrations. Get more involved in more than just trading.
Capital preservation should take precedence over any other consideration if you want to remain in the game and live to trade another day. This applies to the big picture, which is made up of 1 trade at a time. Remember to breathe, deep inhale, exhale slowly. Look at your charts. Are you ready to take the next trade? Are you sure? There is no rush.
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