You are with an overnight position, the market opens against you and you are looking at Big MTM Loss What do you do then?
Stop Trading Immediately
Pull your hands off the mouse and ask yourself, did I follow my rules and trade my setup correctly according to my plan, if so then you’ve done nothing wrong. If you broke a rule or made any sort of impulse trade, get up immediately and walk away from the computer, come back in few-mins when you’ve had a chance to collect yourself. There are over 250 trading days in the year, you’re not going to miss out on the BIG trade that makes you a lot of money within the next 5-mins.
Any Trader will have the below Choices
1. Hope Market will fill gap so Keep Holding the Positions.
2. If you have Capital in Account Average the Losing Position– Its not Recoomeded but still many traders
3. Cut the half position
4. Cut Full Position
Remember, the aim is to stop and reduce losses so Choice 1 and 2 are not advisable.
What I do is I immediately cut half ( 50% of positions) . Reduces risk by half, one gets time to breathe and think, one buys some more time.
Next depending upon the unfolding scenario, I might cut full position or keep holding this 50% with a stop in the system
Once You Book Loss Do not trade Immediately go for a walk or do Visualization or Mental Rehearsal Techniques
One strategy is to practice your response to negative scenarios using visualization or mental rehearsal. We may never be able to entirely avoid the negative feelings associated with a loss, but we can learn, with practice, to not act out on those negative feelings, e.g. revenge trade due to anger being being stopped out.
What if my loss is really BIG?
If you’ve suffered a big loss from breaking your rules, impulse trading, or revenge trading there are some things you can do in addition to the steps above.
First off it’s important to set daily loss limits in your trading account to prevent total destruction of your account in the case of an emotional meltdown where you find yourself clicking frantically and scream at the market throwing your keyboard and pounding your fists leaving you questioning the meaning of life.
3 things NOT to do when suffering from a trading loss
- Drastically change your strategy – chances are it’s not the strategies fault, go back and review your trades to see if you followed your setups exactly.
- Blame the market – The market, while incredibly humbling, is never at fault for a loss. You must claim responsibility and be held accountable for your own trading actions.
- Try to make it back – After suffering a big loss you must clear your head and reset back to zero. Each day is a fresh start and you should not dwell on the past, all you can do is not make the same mistakes again and move forward.
We can also apply the Sandy Gordon Technique in our Trading.
In 2003, the sports psychologist Sandy Gordon was roped in by BCCI for the Indian cricket team. Gordon’s name became synonymous with Indian cricket when his presence coincided with change in Sourav Ganguly’s team’s dwindling fortunes during the 2003 ICC World Cup in South Africa.Post his appointment, the Indian team started chasing down big totals.
The technique he taught the Indian batsman was simple. Say the target was 300 runs in 50 overs. He asked not to concentrate on the total target, but target every 5 overs. So the target for 5 overs is only 30 runs. This is psychologically comforting.
In Trading after Big Loss when you start trading again, Aviod Trading Big Quatity as your confidence should be low and do not think about covering loss in one go. Trade Small and make small profits just like Cricketrs are targetting small total and eventually you will achive big total.
These rules helps me in tough times by continuously dialling down my risk when the going gets bad.
Call your trading Mentor
If you haven’t already done so find a trading Mentor, someone who trades similar to you or whom you have learnt trading and whom you TRUST. Confess your mistake and make a VOW will not repeat it, Talking soothes you down.
If you’re finding that you become extremely emotional every time you take a loss then you are trading too large for your account size, or the money you are trading is “scared money,” money that you can’t afford to lose. You need to step back and reevaluate the bigger picture and where trading stands in reaching your life goals etc.