07 Apr

When Everything Goes Wrong

The next time you go through a tough period in your trading, and you are thinking about taking a break, do me a favour: please read this brief post.

I have a question you need to consider. Which one of these two scenarios do you closest fall into?

quote true adventure begins-when everything goes wrong

Scenario 1:

You have been trading like a man on fire, and you have very quickly built up your trading account. Maybe you even doubled the account or quadrupled it – maybe more. The market environment suited you, and you were able to capitalise well on the market movements. Yes, you did have losing trades, but it didn’t bother you. You were in control of your trading. You took the losses and you did your best to let your winners ride.

Then from one day to the next day things changed. It started off slowly. The peak of your account was behind you, and you seemed to struggle to read the market well. At first it was just a normal drawdown, but then it turned ugly. You had a really bad day or bad week, and it only stopped, when the day ended, or the week ended. You lost a significant portion of your gains. You were still up, but you were far away from that equity peak you were so fund of and proud of.

The next day or the next week you were back in the saddle, and you felt ok about yourself. You realised that losses are a part of the trading profession. Yet somehow you could feel yourself placing trades that were bigger and more desperate than previously. It was more of the “hope” kind of trades than trades based on sound technical or other considerations.

It wasn’t long before you continued where you left the previous day or previous week. Now you are very unhappy with yourself. You have realised that you need to stop right now.

Is this where you are?


Scenario 2:

You have been trading with some success but you also had your fair share of big losses. You have perhaps traded well all day only to lose it all on some final trade of the day. It may be that you have traded well all week, but on that Friday afternoon, you gave it all away.

Your account is below where you started, and you jump from one market to the next, without really knowing what you are doing. You feel ill equipped, and you don’t really know what to do next.

Is this where you are?


Moving forward

I have losing periods too. I go through these periods with a sense of “regret”. I know intellectually that they are part and parcel of my trading life. Nevertheless it always seems to catch me by surprise when it happens.

It shouldn’t surprise me. There will be times when I am trading like a demon, and there will be times when I am trading like Blind Freddie.

However, the two scenarios above require a different approach. I accept you may not fall in either category perfectly. So I recommend that you read the solutions to both situations, and you see what you can take away from the suggestions?


Remedy for Scenario 1

You need to step away from screen for a day. I recommend this because staying in front of the screen can tempt you into trading.

You need to ask yourself: Is there anything you could have done differently?

If there is, then you need to do something about that. If there is nothing you could have done differently, and you have a good methodology, then take a break. The market will be there tomorrow. Right now your body is chemically not in balance, and you are going to experience some very powerful thoughts about getting back to “the peak”. You will get there, but right now, you need to step away until you feel like you are in balance again.

If there is something you could have done differently, it is most likely one or more of the following reasons:

  1. You overtraded and you chased the market.
  2. You were so desperate to catch the next move that you got whipped on the long side and the short side, or you were overtly bullish even though the market kept stopping you out.
  3. You traded too big to make up for the losses you made previously.

What I recommend you do is as follows:

Get the data from the period where it went wrong. Print out the day charts for the markets you traded, and plot the trades on the chart. This will give you a visual representation of what you are feeling: the loss. You will see the loss for what it is.

So what is the loss? Your particular loss could have been just like any of the other small losses you have had, and that you gave no thought to. Yet somehow this loss or these losses cost you a lot more. You either traded too big or you gave the trade way too much leeway.

Whatever the reason, make sure something good comes of it. There is nothing like a little book of “big mistakes” to remind us of the ever-lasting truth in the markets: We are on our own in the markets, and either we learn from our mistakes or we don’t. If you don’t create a little memory of this “un-memorable” moment, then you risk the lesson will be forgotten.


Scenario 2:

I was once in Scenario 2. I moved away from this when I got some trading techniques that worked well. I recommend you spend some time working on two matters:

Develop some solid entry techniques by doing your own studying or pay someone to teach you some solid techniques. I teach solid techniques, but this is not a marketing pitch. This is a suggestion to the path you need to take from here. There are plenty of avenues to take when it comes to education.

Whatever you do, please make sure they suit you. You need to work with techniques that fit your style of trading. Mechanical entries are great like that because they tend to be “time scalable” to suit a time frame that fits you.

The second thing you need to consider is to work on yourself. I have written a trading psychology manual on this subject. The point to take away from this (irrespectively of you are reading my manual or say the book by Mark Douglas about trading psychology) is that we often make the best trades when we are in perfect balance, and we have a clear idea of what we are trying to achieve.

When I am in my most balanced self, I trade well because I am patient, and I am flexible. If I lose one of those two traits, I tend to not trade well.

I hope this will help you. If I can help you any further, then please drop me an email using the form on the contact page.

Kind regards


Tom Hougaard

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