Think Like A Trader Blog

Thursday, 21 February 2019

What Happens When You Hit a Tough Month - Student Experience

Reading Time - 5 Minutes

Hello Traders.

In this blog post I want to go over something that is normal for a trader, but can seem like a huge problem the first time it is experienced - almost like hitting a brick wall.

Instead of simply explaining it, I am going to use a student's experience and will include the email he sent to me initially. We will simply call him 'D'. D has been profitable for 7 months now. He has been doing very well. His particular approach and what suits his trading personality is that he stops trading each month after he hits 6% growth. For the past 7 months he has been doing just that. And on quite a few of those months, I have been surprised by how quickly he reaches his target!

D follows his plan and is very disciplined in what he looks for and how he then executes the trade. He does a lot of work mentally as well as physically to make sure he is in the right place for trading each day he sits at the charts.

And then came this month - February. His trading environment has been more unforgiving and he has found his results to be more choppy. And a couple of days ago he had his first 'emotional trade' in 7 months, where he deviated from his plan and was rewarded with a loss.

Now for D, when that happened, it seemed like the world was coming down around him. It was a glimpse of the old trader who was learning and making silly mistakes regularily. He even questioned his approach to trading.

So what is this blog post really about?

It is to let you know that no matter how well you do at trading and how spectacular your results are, you are going to hit tough periods. It is part of the game of trading and unavoidable. There are times when the most professional traders slip and make a stupid mistake. It is normal.

I always like to say to people that anyone can take winning trades. But a trader is made during the tough periods when the month is tough and you just can't seem to string together your run of winners. That is when people start making mistakes and it all falls apart.

However, D only made one small mistake. A lapse in judgment which he instantly caught and didn't let snowball. His month has been a tough one in that he is down by 2 full position losses. At the time, when you are going through a tough month, it can seem like everything is collapsing around you. But it is vital to get some distance and realise that it is a very small 'blip' on the radar.

Making no money for trading a long period of time is very tough to take. It weighs on your mind and makes you doubt yourself. But it is normal and you are going to experience it as a trader. The most important point is that you don't allow it to pull you down into the depths of making repeated mistakes, changing your plan, your profit targets and just about everything else you can think of.

A good way to do that is to look at it as a whole. So, referring back to D, we would look at seven months of 6% growth in a row. That is 42% in only seven months! And in reality it is more because of compounding.

Then, when the tough month comes, you don't think - I have lost 2% so far this month! You think, OK, I've made way over 42% here and it is time to give some back to the market. This would be me paying my rent and staff wages if I was running a 'normal' business. Or this would be my quiter period if I owned a store.

The danger as a trader is to start thinking you can just have clear skies ahead and ride off into the sunset. When that happens, tough periods can have a much bigger impact. Just follow your plan and maintain your discipline. If there is a mistake, realise that you are only human and it is normal. The key thing is to pounce on the mistake and stop it from becoming a bout of emotional trading.

So, before beating yourself up too much as you run through a tough trading period, instead step back and have a look at what you have achieved and what the tough period actually means in the bigger picture. A trading mistake is not the end of the world and happens to us all. Catch it and don't let it spiral out of control. Tough months happen. You don't have to look very far to see traders out there who have regular 20% and even 30% drawdowns. Now, I could never deal with that and continue forward. But that is my weakness. However a 2% drawdown after 7 months of consistent gains is nothing.

I have copied the email below. Realise if any of you are struggling that it happens to everyone. No trader is perfect. The ones who show you nothing but gain gain gain and say it is easy for them are, quite frankly, full of shit.

I hope you're all having a good trading month.

James Orr


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