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Trading Disasters and how to Prevent them
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Trading Disasters and how to Prevent them

  #1 (permalink)
Market Wizard
west palm beach florida usa
Futures Experience: Advanced
Platform: ninja trader
Broker/Data: Optimus Futures/ Rithmic
Favorite Futures: Cl, TF
Posts: 734 since Oct 2011
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Forum Reputation: Legendary

Trading Disasters and how to Prevent them

Below is an article I wrote for a Trading Blog several months back. The Ironic thing about it is that the scenario I describe actually happened to me yesterday. I lost emotional control and took a big hit trading CL. It started with several losses in a row, then doubling, tripling quadrupling my position can guess the rest.

Trading Disasters and How To Prevent Them

Your indicator has just given you a signal to enter long and you take the trade. You’re up a few ticks and then, without warning the price races down and hits your stop. You feel some irritation come over you as you wonder what made this strange move when every technical indicator on your chart showed the trend was clearly going up. Now as you watch, the price resumes it’s upward move and you believe you were right all along in it’s intended direction. Convinced the downward spike was merely an anomaly, you go long again, this time widening your stop to 20 ticks.

To your horror, the price begins to move down again. As the price is a mere 4 ticks from your stop, you rationalize that it’s just one more downward push triggered by the “Big Boys” who want to clear out the long position guys before they buy back in and send the price soaring in your favor. So you decide to move your stop back another 20 ticks because there’s just no way it’s going down that far..this time. But when you see the price is indeed about to hit your 40 tick stop, you feel a wave of nausea come over you. Your pulse begins to race and your head throbs. Out of control of your logical brain, you move the stop another 10 ticks. The merciless market takes out your stop and you sit there reeling from taking a 50 tick loss plus the 15 tick hit from earlier.

It doesn’t occur to you that something has caused a serious downward move in the markets. It somehow defies your technical analysis which said the trend was overwhelmingly bullish and that was the only direction to trade. Now, with your adrenaline flowing through you and your desire to win your money back no matter what, you make a terrible decision. You decide to trade 10 times more contracts than you normally do. All you figure you need to do is scalp 7 ticks and you can make up for the 65 you just lost. You see the first sign of a retracement and you go long with your huge position size. Unfortunately you’re wrong again and you feel the panic grip you as your stop is hit again. You now go to your bed and curl up in a fetal position and contemplate ending this nightmarish trading endeavor once and for all.

As dramatic as this sounds, a lot of traders have had very similar experiences. Obviously many of the mistakes made could have been prevented. Here are some of the lessons to be learned from this story.

Never have too much bias as to the direction of a market. At any given moment, price can make a dramatic change. One must always remain. flexible.

Don’t keep widening your stop loss. This is one of the main causes of trading disasters. Learn to take a small loss and move on or forget about being a trader.

Never double or triple up your position size to try to make up for a loss. If you’re wrong, the results could be catastrophic. Also, be aware of your emotions. If you feel excessive adrenaline and you have an overwhelming desire to instantly recoup your losses, walk away from the computer. Go for a walk or a bike ride. Just do anything but trade. Huge mistakes are made when you trade in the wrong frame of mind.

Hopefully this story will resonate with some and possibly cause them to think twice before having to experience a trading disaster.

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Elite Member
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To prevent this from occurring, I have a set number of maximum trades I can take in a day and I am never allowed to increase the # of contracts during the day. These are hard rules to prevent tilt.

"The mind is its own place, and in itself can make a heaven of hell, a hell of heaven." - Milton
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