At different points in our day trading career, we will take a wrong turn. One time it may be on accident, another may be on purpose. But, one thing is for sure, we will end up going down the wrong path several times in our career. It doesn’t matter whether we have been trading 2 weeks, 2 months 2 years, or 20 years. The only difference is that the longer we trade, the fewer and farther between these incidents will occur. The one thing that stays constant, no matter our experience level, we will need to have a process for getting through it and back on the right path.
If you have followed me for some time, you know that I am all about simplicity. The fewer steps in the process, the less moving parts I have, the more precise and consistent I can be working my way through a crisis. In this blog, I will share the simple process I use to help me find my way back to the straight and narrow path to success in this industry. There are several key principles that I employ to help me achieve this.
The first principle is to realize that you are having a problem and have taken a wrong turn somewhere. It is important that you develop this skill of understanding who you are as a trader and when something is just not quite right. Understanding who you are and being able to self-assess is a very important component in your development as a trader.
The next principle is to take responsibility for your actions. We cannot play the “blame game” at this stage, regardless of what caused us to veer off course. Blaming others is admitting you don't control your own trading, and if that is the case, why are you trading? If you control your trading, then you can fix it. If others control your trading, you can't fix anything.
The fact is, the ultimate decision was made by us. It would be so easy to take the pressure and responsibility off us and place it on something else. But the reality is that if we do this, we have suspended any chance we have of growth. We will not learn anything by blaming something else and we are setting ourselves up to repeat the same action.
It doesn’t matter if there were surprise events, or technological equipment failures, or trading platform issues. There is always an excuse for a string of losses or bad trades. Some are actually good excuses, but as traders, we ultimately must accept all the risks. Until we are willing to do that, history will likely repeat and the same thing will happen again and again. The bottom line is that we are responsible for whatever happens with our trading and we must accept that.
The third principle is to reflect on how you ended up where you are. Reflection, or thinking about our experiences, is the key to learning. Reflection allows us to analyze our experiences, make changes based on our mistakes, keep doing what is successful, and build upon or modify past knowledge based on new knowledge. I have a simple six step process that I use. Below is an illustration of it and how I use it.
The fourth and final principle is, Make the adjustments. Address issues as to what is causing the problem and make any necessary trading plan changes. Get back to the basics. Return to your core trading strategies. Get back to really knowing your strategy. Knowing what market conditions it works best in, and what the profit and risk expectations are. Get back to what attracted you to trading in the first place: building or learning a strategy that made money consistently. Trading is hard, so get back to loving and embracing the challenge.
By going back to the basics, you will be taking things slow. You will trade with smaller size and slowly increase. You may even want to trade a few days in the simulator while you just observe the market. Even if you hit the ground running and string a few winning days together in a row, increase your position size incrementally, so it takes about a month to get back to your full position size.
I know it's annoying to start back with a small position size, but it's for the best. Bouncing back from a losing streak or a bad trading streak is about getting back to basics and implementing your core strategy well. Bouncing back is not actually about making money. Money comes from implementing a strategy well and re-establishing the skill that you developed. Trading small position sizes gets you refocused on what's important, so you can start building your confidence again. Then the money will come, naturally, without being forced.