Learning from Losses | The Reckless

Not taking the time to do all the things that needs to be done.

Not taking the time to study and manage risk.

Not taking the time to be more and more disciplined as a person and as a trader.

Not taking the time to develop a trading plan and validate rules, test on, prove and disprove different strategies.

Not taking the time to become methodical in their process and structured and organized as a trader.

Not treating it as professional as they should.

Time.

Investing the time.

I was listening on Chat with Traders Episode 019 on Youtube and everything that Stuart McPhee said hit me on point. Everything from this episode is what new traders need to hear to survive their beginning years. And I wish I could've heard this episode back then when I was starting. But still, I am thankful I stumbled upon this specific episode. A must-hear episode for every new traders like me out there.

Here's a summary of what the episode is about. If you want to hear it, I'll post a link at the end of this post.

Of Trading Plan

He was doing a talk in Singapore in a room with 35 people when he asked,

"Hands up, who here has a trading plan than he can present to me right now?"

And from those 35 people, one person raised his hand up.

One.

He then asked a follow-up question,

"Who then in this room believes that they can make money consistently over an extended period of time without a trading plan?"

Not one hand goes up.

Ooohf... reality-slap to the audience, right there!

But let us face it. We've probably heard or read about the trading plans numerous times but we still don't bother on making one. We attend talks, live seminars, webinars, watch live streaming but still some of us just continue on our trading without a trading plan.

The people in that room clearly accept that they all need one, with the exception of one who raised his hand, yet no one has one.

There's clearly an issue there.

As Stuart explained, a trading plan is simply a compilation of your rules. Your rules are there to protect you from making silly decisions.

A trading plan can minimize thinking during market hours by having all sort of plans from Plan A-Z. It helps limit trading mistakes and minimize your losses. It should spell out every action needed, so that you don’t have to make any rash decisions in the heat of the moment during trading hours.

He also mentioned that in time when you have done a thousand times - same setup, same entry strategy, same exit rules, same position sizing strategy - you would become more instinctive about it and it becomes a routine that you can do it in even your sleep.

So why not make and have one?

Most of us new traders are daunted by the thought of it. Intimidated by thinking that a trading plan is only for the big boys. The Pros. But the reality is, every traders should have it. Think of it as a part of the Trader Starter Pack.

So, where to start?

Start with the basic:

1. How do you get in - under what conditions would you get in a trade? 
2. How much do you risk - your position size? and;
3. How do you get out at a loss or at a profit?

These three questions should form the basis of your trading plan. Don't be overwhelmed by the idea of making a trading plan. Don't over-complicate it. You can always start with the basic ones and improve later. Its a process. 

How to follow your trading plan?

Discipline is the key. But developing a solid discipline takes time.

Stuart explained how humans are habitual creature. For them to develop a great habit, always start with smaller ones.

Setting goals like "This year, I'll completely change. I'm gonna cut my losing trades every trade from now on", is just not practical. It doesn't work. People later on realize that it is too much for them to follow it consistently.

Buy if you start to cut your first 3 trades every month, then you would be able to easily do that. You then can get a high completion rate of your goal. And then increase that goal little by little. Then later on you'll realize that you were able to change your behavior of not cutting your losses slowly but surely.

The trades that you cut your losses, a week later you might look back at it and go, "Had I not cut that, look at the position I would've been right now." And then you start to convince yourself that you are capable of doing it and it's the right thing to do.

On entry-level-traders slipping up.

He summed it up in one word - RISK.

Failing to understand to manage risk. Entries won't kill you as a trader. It's what you do at the other end of the trade. It's failing to manage risk. It's failing to understand the risk. Failed to realize how difficult trading is. Trading is never easy. It's a lot more difficult as people realize. Thinking of trading full time, not appreciating 10,000 hours of work to develop a certain level of competency at a particular skill. But 'risk' is one word to sum up.

This is so me back in August 2018. I jump into active trading full on. I put so much of our savings in my trading capital. Grinding it every day without a trading plan. Basically winging it. Failing to understand the risk. Not until my port was burning down with losses. Thinking that trading is' 'just' another skill that you can learn and jump right in it.

No, I was wrong. The market proved me wrong. And indeed, experience is the greatest teacher.

What stops majority of traders from making a huge success.

Not taking the time to do all the things that need to be done. Not taking the time to study and manage risk. Not taking the time to be more and more disciplined as a person and as a trader. Not taking the time to develop a trading plan and validate rules and test on and prove and disprove different strategies. Not taking the time to become methodical in their process and structured and organized as a trader. Not treating it as professional as they should. Time. Investing the time.

He then relates it into someone who plays golf as a hobby. The person doesn't make money from playing golf as a hobby but it costs him a lot of money in paying club memberships and buying golf equipment.

New traders aren't that different. They don't treat trading as a professional skill or a business at first. They treat it as a hobby. Something they can do in their spare time. In that they enjoy it, they spend a lot of time doing it but at the end of the day it cost them money.

Trading demands a little bit more of our time and respect. As Stuart said above, we have to invest our time in it. Treat it like a profession where you start learning at a college degree that you'll spend 4-5 years of studying the course and paying the tuition fees before you graduate. After you graduate you'll still have the challenge of proving yourself on interviews to get that job that pays entry level salary. Then the next challenge is to improve your performance and grow more on your profession.

How do you manage emotions and what gives you the confidence to push on after few losing trades?

Desensitized.

This goes back to having a trading plan as a habit or a routine. You do it a thousand times and over a period of time you'll become more and more used to the emotions to the point that you'll be able to manage them.

A surgeon who cuts a chest open of a human being - to you that looks gross but to him who has done it over a thousand times has become incredibly numb to that feeling.

Winging it.

For the first months of my trading journey, I was basically winging my way into trading. I was reckless. I never had a trading plan. I subscribed to a paid stock recommendations. I followed other people's 'advice' on their daily blog. I was a blind follower. And it was true when Stuart said that you would abandon the 'system' as soon as you realized that it is not working for you. I jumped from one indicator to another. Pairing and mix-matching them didn't work. I switched indicators as soon as it gives me a loss.

I am still not profitable even though I started using a system. But the feeling is different now. I feel that what I am doing now has some meaning for my journey. I believe that success is in the process and not in the end-results. The profits at the end is just a byproduct of you going through the process.

Here's the link to the full episode.