Before even entering this scenario, it’s important to note the value of trading education. Since live trading can be a real meat grinder for the uninitiated, having valuable foreknowledge and extensive training can mean the difference between reasonable loss and catastrophic loss. But while reading books and developing an understanding of what can happen is valuable, experiencing it live is invaluable. In our 60-Day Stock Trading Bootcamp, we offer a live trading simulator that mimics stock performance without the added pressure of risking real money, which offers the additional benefit of determining your personal potential for profit before entering the profession. With this knowledge, you’ll be better prepared to face the inevitable in the following manner.
Take a Deep Breath
Day trading is an extremely difficult occupation. Markets move quickly, analytics are complex and varied in success rate, and those with experience know that this is a recipe for failure. In fact, while exact estimates vary, the consensus is that 80% of day traders fail out of the occupation in their first year.
This information isn’t intended to scare you, it’s intended to give you some perspective. Failure is a part of day trading. You’ll have up days and down days, just like the market. Success lies not in never failing, but in minimizing losses when they occur, and using that momentum to fuel advantageous positions. So, begin by taking a deep breath and understanding that what happened, happened. There’s no changing it and you’re certainly not the first day trader to experience a failure.
Record What Happened
While simply moving forward may be an attractive option, real growth occurs by making observations. At this point in your practice, you should be keeping a trading journal for reference. Doing so can provide valuable data and help determine the effectiveness of your method, your instincts, and your indicators.
Utilize this resource in failure as well as success. Record the trade, what indicators lead you to enter the position, what happened, and what the total loss was. Documenting this information will not only lend insight into the current situation, but provide information in the future that can help prevent the error from occurring, which is the ultimate goal.
Identify Your Mistakes
Theoretical analysis makes numerical sense of an “irrational” market by identifying trends and facilitating trades on them. In the case of failure, it is unlikely that analytics failed you as much as your method or your behavior. It’s understood that not all methods of theoretical analysis are created equal, so understanding what metrics lead to your loss can help you evaluate your trading strategy. What’s more likely, however, especially if you’ve been trading for a little while, is that your emotions got the best of you. Did your indicators tell you to get in? Did your indicators tell you to get out? Look at what the data said and how you reacted in order to determine whether your strategy, or your humanity, are at fault.
Plan on Prevention
As stated earlier, not all losses are preventable, but there’s valuable information in the data you’ve gathered that can help mitigate losses in the future. The first thing to do is examine your calculations and determine if a better exit point laid buried in the data. Improving your understanding of the market, a particular sector, and even a specific stock can greatly improve trading efficiency and minimize losses in the future.
The next thing to do, especially if your emotions dictated your trade action, is to determine whether stops can be introduced into your strategy. Automated measures do two things. First of all, they react quicker than you can, meaning less lost time and money when a position heads south. Second, they remove the burden of choice from your shoulders. You can always trust a procedure to make the right call, as long as you’ve told it what the right call is ahead of time.
At the risk of over-stating the point: trade losses will occur. The best traders make money over a long period of time, playing losses and gains to net profit. The best thing to do when you fail, after evaluating what went wrong and how to fix it, is to soldier on. One of the things we tell our Bootcamp Students is if you slump for 2 weeks go back on the simulator and build back your confidence and tweak your tactics. During that time review your old trades and show them to a teacher or friend and get a 2nd opinion on what went wrong or right on those trades. The feedback is invaluable. Trading is all about skill development and you need repititions to get their thousands of them. Whether they are live or on simulator doesnt matter they all help. Having thoughtful review of those trades while you disect them will also add repititions under your belt. You’ll never get better if you don’t glean the experience needed to better read market movements, so pick up your confidence, your analytics, and your trade strategy and walk forward, trusting that data, intelligence, and a cool head will bear fruit in the end.
Failure is as much a part of day trading as it is a part of life. Beating the market lies not in never failing, but getting back up every time you fall, smarter and stronger than ever. First, calm your rocky temperament and take record of the events that lead to a loss. Identify what went wrong and determine the best course of action for prevention in the future. For our students we recommend minimum 1 month on a simulator before you trade live. Even then only if your profitable 4 out 5 days a week are you ready to trade live. Finally, get back up. Get back into the market with a cool head and a better understanding and rest assured that you’re better for the experience, both emotionally, and, eventually, financially.
Come trade with us in the bulls room. Email me firstname.lastname@example.org for a 2 week free trial and see what we are all about