How not to handle a loss, a $5k lesson for free.

How not to handle a loss. A long time friend and client sent me a text to see how I was doing and tell me how he was doing. He had taken some time off to deal with the family business and a cross country move. He has things that enables him to be a great trader. He has money dedicated to his trading account, he acts confidently, he does his homework, and he is willing to get better.

I can tell my little brothers, whom I love more than life, not to make the same mistakes, but I cannot stop them. I hope they realize where the path leads and they recognize it faster than I did. But I can never prevent it and truthfully I do not want to prevent it.

The text continues, I started trading again I did ok the first day. The second day I lost 5k and today I lost 160 on two trades. Most of the questions you have, you already know the answers to, but your view gets distorted. Things look different from an airplane than they do from the ground. I know educators and people do not want to hear this but as someone else said, you hire a guru so you have someone else to blame. That is a disservice, like I have said you have to own it to understand it, to learn from it, to conquer it. The people I work with understand that or I give them a prompt refund. I told him next time he wants to lose 5k, let me know I will fly down to see him, kick him in the balls for half that and he can keep the other half.

Seriously though, he is a smart guy and a talented trader.  At this point I call him, I want to hear more about his day that cannot be transmitted through text. It becomes immediately obvious he broke three major rules. Knowing your limits and stopping, you have to be able to accept lose. Tomorrow is more important than today, be able to trade tomorrow or next week. A limit must be decided before your very first trade or you might as well not even have a limit. When you are losing, especially after taking time off it is hard to not take it personally. You are a failure, no you actually just failed that day, a speck on your trading timeline, hopefully. Secondly, he did not leave yesterday behind. He told me he could not sleep that night and it obviously affected him the next day because he only made two trades. I can never blame someone for taking a loss hard, I have lost the equivalent of a car before. I still think about it but I do so in a way that is beneficial to me. However, he knows my rule. If you cannot forget about yesterday or your last trade do not take the next trade. Thirdly, he lost the lesson. How do I know he lost the lesson? He overtraded, he went almost 3x his normal volume and quazillion ( I know it is a made up word) times his volume from last week. No brain can comprehend that. It is like driving a car at 80 mph and expecting the same vision and control as driving 240 mph. It is not the same.

What should he do from here? First, quit thinking about the loss, if that cannot happen tomorrow or next week than fine, do not trade. Take as much time as you need, the market will always be there. The money matters, it just does. I know he has a cushion so he does not need to make the money back tomorrow. He is proud, confident person that is a good and bad thing. In my opinion his pride and confidence got in his way by not accepting the loss. But he will use that pride and confidence and tell himself that he will do whatever is necessary to get back to zero. Why do I think winning is so awesome in trading futures? Because the loser is now twice as far away from their goal, that is the side effect of losing. I can pile on the weak, it is not pretty but as a micro term opportunist that is what I do. He has to go back to the basics, struggling and new trader, are the same person. The difference is the struggling trader knows he can do it because he has before. Use those instincts, he has done it before. He can make all his money back tomorrow. Why won’t he? Because he will try to make all his money back tomorrow. Focus on the process and not the goal. If I focus on running a marathon, I will not take one step in a running shoe. If I think about walking a block tomorrow, eventually I will work up to running a mile and than 26.2 miles. Some people think that patience only applies to letting the market set up, it also and more importantly applies to making your money back. It was never “your” money if you do not understand that concept, it was my money or the markets money.

He went through one of the “special” situations that happen to traders, coming back after being away for awhile. Will it help him the next time he is in that situation or will it help you to recognize the situation before it gets bad, well that is up to you guys.

We would really appreciate your feedback, if you like, hate, or think we are full of crap. Please leave a comment, a voice mail (312) 725-9121, email eli @ traderhabits (dot) com or twitter.

One Response to How not to handle a loss, a $5k lesson for free.

  1. […] This post was mentioned on Twitter by Eli Radke, Eli Radke, My Futures Network, Futures Trader, Ask a Trader and others. Ask a Trader said: How not to handle a loss, a $5k lesson for free. http://bit.ly/9IQXxT $$ $ES […]

The services and materials provided should not to be interpreted as investment advice, an endorsement of any security, commodity, future, or personal investment advice, or an offer to buy, sell, hold or trade futures, options or commodity interests or a recommendation to buy, sell, hold or trade futures, options or commodity interests. You assume the entire cost and risk of investing and are solely responsible for any and all gains and losses, financial, emotional, or otherwise, experienced, suffered, or incurred by you.

Read previous post:
3 things that will kill your trading success.

Three destructive habits that will kill your trading day, week, month, or career. No one believes me that almost all...

Close