Before the market opened this morning, I had a trader come to me asking for advice. Brian, a 30 year old who recently came to my trading floor from a different company, is a great guy with the potential of being a fantastic trader. Unfortunately, in the past few months he has dug himself a $25,000 hole in his trading account and is starting to get nervous.
The first thing I told him is to calm down and push the nervousness away. Trading scared is one of the worst things you can do to yourself. When you trade with fear you make mistakes; you sell your winners too early or too late, you make your trades with the wrong sized positions, and you trade securities you shouldn't be trading.
If you were a passenger on a plane, and 1 of your 2 engines stall, would you rather have a pilot who remains calm and follows protocol or one that gets scared and starts to panic? Same thing is true here, I told Brian he needs to remain level headed and focused.
Second, it's time to modify your trading plan. Successful traders adapt to different markets. What worked in the first half of the year might not work for you in the second half. Changing what stocks you trade and your profit/loss goals, is key to seeing profits. Certain times of the year you need to push the envelope and others it's better to pull the reigns in. The majority of what Brian is doing is not working; therefore he needs to change it up.
Third, not all of what he is doing is losing him money. I suggested that he keep a trading journal. In it he is going to track which trades are his winners and which are losers, the number of shares he buys/sells, and what the stock market did each day he traded. The goal for this journal is to see patterns in his trading.
For example, when people trade with too much size, their emotions take hold and they can make poor decisions. I have seen many traders that have cut the size of their trades and become much more successful.
Also, keeping a journal can show Brian that when the market moves a lot he has winning days but when it doesn't you has losing ones. That's a great pattern to recognize because now he can stay away from trading when the stock market is quiet.
Whether it's $25,000 like Brian, more money, or less money, I am sure that many of you have felt just like him. Follow the steps above, and you will find success. Keep focused, do some work, and don't be afraid to ask for help from other more seasoned traders. You will push through the tough times and when you do, you will be a significantly better trader then you were before.
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