I’m a DNA member and really enjoyed your book One Good Trade. I have a problem’s with about 5-6 days a year that are big loses. Really hurting my annual results. Thoughts on best practices….Do you recommend a platform that will cut me off? Thoughts?
Recently, I asked one our consistently profitable traders his plan to make seven-figures in 2019. He can. My work with him relates to your question.
In response to my challenge, one area for significant improvement for him was minimizing losses. The trader wrote:
Cut out more losing days
Looking at this year so far I have had over 200k in losing days – eliminating some of that goes straight to the bottom line. Every losing day must be made back – not losing is the same as winning in the final account.
Another elite prop trader, with whom I work, was especially proud of his trading during a recent slow day. He made nothing. More importantly to him, he lost nothing. Normally, he would have lost too much. He saw this as significant progress for his trading through improved self-awareness. It was.
Here are some ideas to help you minimize the damage on your worst trading days.
1) Set an intraday stop
What is your max loss for a trading session? Set that limit.
2) Set limits for max loss per trade
Not only should you set limits on how much you will lose overall intraday, but you should do this per trade. One trader, who I coach, has now done this with his trading and experienced solid consistency. You want to risk a percentage of your intraday max loss per trade. This gives you many chances to be wrong intraday and still be in the game to catch a big opportunity.
3) Set your platform to reject further orders
On most platforms, when you hit your preset max loss it will reject orders to add to positions. All you can do is trade out of existing positions. Turning a bad trade into a huge loss can be avoided with technology.
4) Empower someone to stop you out
On our desk the Risk Manager, will stop you out if you surpass your intraday stop loss. More specifically, the Risk Manager works with you to set the appropriate intraday max loss. And when you near this amount, he will tap you on the shoulder, and ask for your exit plan. The Risk Manager will calmly work with you, protect you, so your bad trade doesn’t cause excessive harm.
Independent traders should find a Risk Manager for their trading. Often you can call your broker dealer, set limits, and empower them to turn you off when you reach them. Traders need to be protected at times from themselves. They need someone to take them out of a trade so they do not do more harm.
5) Study your worst days
Often your worst days have commonalities. Solutions to disrupt poor trading can be implemented to thwart your worst days. For example, it is common for traders to experience their worst trades when they add to losing positions. You could eliminate this process. For example, it is common for traders to struggle midday and find themselves on tilt, leading to excessive losses. Scheduled breaks can be a solution for this. For example, some traders just do not have edge with certain trades that can be identified in their trading stats. Eliminating these trades can lead to significant progress.
When you learn when you trade badly you can develop solutions to minimize their impact.
*no relevant positions