When I have a string of losses I pause and reflect and ponder if it is me trading badly or just the market environment not being conducive to my trading method. Here are 10 questions we will do well to ask ourselves at times when we seem to be out of synch with the market.
- Are we taking good entries? We have to enter at a high probability moments to put the odds of winning on our side. Buying support bounces, shorting resistance levels, or entering on confirmed break outs.
- Are we trading too big? Big position sizes can cause us to stress to much and exit too quickly, we must trade a comfortable level that allows us to overcome our emotions and stick to our trading plan.
- Are we risking too much per trade? We need to cap our risks at no more than 1% to 2% capital at risk per trade. It is very difficult to make back big losses on a percentage basis it is much easier to steadily grow an account by avoiding those big losses with correct position sizing.
- Are we trying to fight a trend in the market? Has our ego and opinions over taken our ability to trade price action? We must identify the trend in our time frame and trade with it.
- Are our stops too tight? We have to place stops at logical areas that prove we are wrong, we have to give trades room to breathe and not get knocked out too early.
- Are we trading markets or stocks we are unfamiliar with? We need to focus our efforts on only the trading vehicles and markets we know very well.
- Are we trying to trade outside our own time frame? Day traders can’t turn into investors in a bad trade and long term trend followers can’t suddenly start day trading. We must stick to what we know.
- Do we need a break? There are times to just get away from the market and refresh your mind and emotions. Tired and stressed out trading is bad trading.
- Are we trying to trade too many markets or stocks? I have always made all my profits with a condensed watch list of only a few things not trying to trade more than 3 to 5 things at any given time.
- Have we done our homework? If we are not prepared with chart studies, back testing, trading psychology, and risk management we will lose, our trading will suck.
If the answer is yes to some of these questions it could be time to trade smaller and less and let the market settle down to get to the other side of a drawdown safely until your method starts winning again. Also focus on signals and try to avoid the price noise .