When I first started trading equities 5 or so ago I was such a greenhorn and eager to make my millions in this game. Little did I know my first year would amount to over $10,000 in losses. Looking back, it was working through each losing grade and aiming to understand why I lost money that helped push me to where I am now. Here are some things that helped me.
1. Biggest thing to do right is to set a stop loss. I know this sounds like common sense but you wouldn't believe how many traders mess up their account by being egotistical and saying "oh well" it will come back up. Well, I'm here to tell you that it most likely will not come back up for while if at all. Most stocks continue a trend until a certain point and that trend reverse. Take your loss and put that money to work somewhere else
2. Position sizing is key. If you have a $1,000 account or a $1,000,000 account never use more than 25% of your total account value on one trade. I personally use 10-15% on each trader so I have available cash to cushion a drawdown. (pros lose too)
3. Stop trading after a string of 3 or more losses in a row. You need to take a step back and look at what may be going wrong. It may be out of your control but you need to verify that and wait to trade when conditions are right. If you are just revenge trading cause you keep losing then you will end up broke.
Nice write up. I could not agree more. The use of a stop loss has been critical for me. I have stopped out a lot at the end of a day (yesterday in fact on two trades) and I am glad it did because my losses could have been much worse. When I first traded I did not use stops and I spent almost a month or so stressing over about 10k in trades. I got luck and it came back up enough that I only lost a few hundred dollars. If I would have just used a stop loss when I bought I would have saved a lot of pain. I now only commit a trade using a One Triggers Another (OTA) with a buy and sell stop limit on all of my trades.
One other thing that I learned that is important, do not chase a correction. Wait and see how it plays out. Often the bigger corrections during a rally will pause several times in a day and maybe even over several days. Wait until there is a clear stop, bottom, and resumption of the rally. This rally since March has been extra hard because I have seen notable correction happen only for a few hours in a day and then take off again by the end of the day. RSI and MACD are really helpful for monitoring these moves. I never trade without them now.
The_Level_Two
⋅
@Dr_Roboto, absolutely love the OTA orders. I use buy stops as well so I can step away from the desk for a while. Sounds like you have learned a lot about your trading style!
Investroy
⋅
Great analysis!👌🏻 when you do think your bias will kick in?🔥
The_Level_Two
⋅
@Investroyllc, I battle my bias every day. I try to see trades from both ends but IM 99% long stocks. lol
One other thing that I learned that is important, do not chase a correction. Wait and see how it plays out. Often the bigger corrections during a rally will pause several times in a day and maybe even over several days. Wait until there is a clear stop, bottom, and resumption of the rally. This rally since March has been extra hard because I have seen notable correction happen only for a few hours in a day and then take off again by the end of the day. RSI and MACD are really helpful for monitoring these moves. I never trade without them now.