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Lessons From Losses

Hey Market Pilot,

As with most skills that are new to us and will take time to acquire, trading will involve many, many (did I mention many?) mistakes along the way. Those mistakes typically come in the form of losses, which can be draining on our psyche and our account.

So let’s take a few moments and discuss how to overcome trading losses since that is crucial to becoming a successful trader.

Nearly every trader I know recommends reading anything by author and trader Mark Douglas. I own two of his books and I felt like he was looking over my shoulder at all of my mistakes and wrote the book specifically for me. If I can relate to most of the topics he writes about, then that means I am not alone and there are a lot of common mistakes a trader makes along the learning path.

If you don’t know how or why the loss happened, then you can’t figure out the course of action needed to fix the problem.

Let’s start with an easy one: it wasn’t anything you could control or anything you could have accounted for in your efforts. This would be a random news article, a buyout, a problem with the product or service, a lawsuit, or some public figure saying something about the company. Heck, just about anything that overrides the technical action of the charts (and probably while the market is closed) is outside of anything you could plan for in this situation.

But within technical analysis, you have your areas of support, moving averages, indicators, and rules. So what went wrong that trade when using technical analysis? Well, if you didn’t follow your rules, then that is your mistake and you need to be more committed to them. If your rules, when backtested, are not giving you above average results, then your rules aren’t working well enough and you need to adjust them.

Also keep in mind that a certain set of rules may fall apart when the market environment changes, which I think many traders don’t consider. They just keep pounding away at what used to work, but doesn’t anymore. This is known as redefining your trading plan. You most likely won’t need to throw out all of your rules, but they will need to adapt to the current market.

The challenge is knowing when and how the market is changing and adjusting quickly enough. It certainly won’t be perfect, and it might be messy for your account during that transition, but eventually the market will get into a groove you can work within and that is when you will start growing your account again.

Your Profit Pilot, TG

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