Let’s face it, you are not going to have a good day trading stocks every day. It just doesn’t happen, and those who say it does are nothing but a bunch of frauds. Every day is its own riddle to unravel and mystery to solve, and sometimes you just aren’t going to be on top of your game. One of the biggest keys to successful trading, is knowing when you are having “one of those days” and shut everything down and simply stop trading. However, that can be the hardest thing to recognize and know, because every trade is easy to believe will be the one that sets the record straight, turn a losing day into a profitable one, and reverse a myriad of bad trades.
I’ve had my share of bad trading days, and have had to learn the hard way over the years, that when trades are not working in my favor, I’m best off to simply call it quits. Tomorrow will come, and will be a new opportunity for trading. Perhaps my mind will be a bit clearer, and I will be fresher, and have a better take on the market. Emotions whether we choose to believe it or not can and will distort human logic. If one is going through some tough and turbulent financial times, or if there is a death in a family (I’ve actually closed out a trade during a funeral on my iPhone – Bad Ryan, I know) then our sense of logic and understanding can be greatly skewed. Its best that if one is under this type of stress, to just refrain from trading all together as you are much more prone to add insult to injury (I know I am!).
So knowing that I am prone to bad trading days, as I hope everyone else realizes about themselves too, I have put in daily, weekly, and monthly trading guards that tell me when enough is enough.
On a daily basis, I will stop trading all together if I am down 1R or more (click here to better understand “R” and Risk). That means I may be down .5R but then trade again and then lose .8R, at that point I am down a total of 1.3R which breaks the stop-trading barrier and I am done for the day. On the other hand, I may trade just once, lose a full 1R and as a result I am done also.
On a weekly basis, If I lose more than 3R, then I am done for the week. I’m not going to allow one week, where my trading is apparently WAY OFF to wipe out months of positive returns, or put me in such a hole next week, that it takes a couple of weeks just to get back on solid ground. And then finally, there is a monthly stop-trading, in which if I am down more than 10R in a given month (which hasn’t happened to-date), I will wait until the next month, spend the time to evaluate my trading tendencies, review past trades more thoroughly, and make the necessary changes that are needed. Usually these types of changes have to do with my mindset, not so much my trading strategy.
So there you have it, these are solid guidelines I believe can help you out in your own trading endeavors, to help you preserve capital, and keep you in this game for the long run.
