How Traders Deal With Tough Times

  • September 10, 2014
  • Blog

There isn’t one trader that has been around the markets for any length of time and not experienced a tough period or a losing streak and really felt down about things and unsure which way to turn.

It happens in every high reward industry and in order to earn elite levels of money you need to have elite levels of character strength. But there are specific steps I take to get me back on track and most importantly defend my account so when things start to “click” again I can pick up where I left off.

The first thing you need to understand is that all traders’ accounts have swings, it is perfectly normal. But the difference between a profitable trader’s account and a losing trader’s is the pro’s don’t let it damage their account, they remain controlled at all times. Control of the account is key.

In order to do this you need to have humility. Top traders have no ego (contrary to popular opinion) you accept the markets give and they take. You have to know when to strike hard and when to ease off and that’s how you get to control the market and not let it control you.

So first thing to do is make sure you have a set of money management rules that force you to scale back. In The Day Trading Mentor course I outline how I manage my account on a trade by trade basis and how your position sizing needs to reflect this. But on an account level, if I have 2 losing days in a row that were small losses and I didn’t get near to my downside stop loss for the day I will halve my downside stop for the next day. So for example, if my worst case scenario was to lose $1000 in a day, that is my daily stop loss and I had 2 days in a row where I lost $500 or $600 I would say to myself “ok, I am not reading the market well at the moment, it is time to scale back” and the third trading day I would only allow myself to lose a maximum of $500. If I were to have another bad day I would reduce my downside on the day again. If I hit my downside stop twice in a row (only actually happened twice in over 10 years and counting) I would take the next day off. Just to clear my head I am always playing defence when things are tough.

During the first couple of years of my career as a proprietary trader I picked up a huge trading edge in the energy markets and was quickly getting to a level where I was generating close to 6 figures a month in trading profits. But after a year or two that market became saturated and I stopped making as much. I scaled right back, I went from trading 50 or 60 contracts at a time back down to 3 or 4 contracts within the space of about a month. It took me around 4 months to start getting consistent results again and it only takes a few bad months to end some people’s career when they don’t scale back quickly. Fortunately the period it took for me to learn new edges cost me a couple of percent of my overall capital... tuition fees... and as soon as things were showing steady results and I was finishing positive every day I started scaling up my trading size again and only took me a month or so to get to trading 10-20 contracts. Trust me, you can make a lot of money on that sort of trading size and then every week I scaled it up a bit more.

When you hit a bad patch it does feel horrible, but you cannot rush these things, markets, as with so many things in life move in waves and it is your job as a trader to make sure the bad patches brush off you with no lasting effect, then when things are good again time to really hit it hard, some years I would make 80% of my income in a space or 8 weeks or so, when everything lines up in the market you have to go big! And when things aren’t so good you scale back quickly and just look to hit singles and remain positive.