I'm a bit late posting this, but I had to take some time to regain my bearings over the past few weeks. Basically, the first of April was crippling for me. I had my biggest career loss on the first trading day of the month, then another big loss a couple days later as I mistakenly believed I was mentally prepared to jump back in. I was near $11k in total profits, but those two trades effectively destroyed my previous 2 months' work and set me back near the starting block.
My first thought was, unsurprisingly, "Am I really cut out for this?" It's horrifying to experience first-hand how one bad trade can take away so much, despite how many stories I've heard from mentors and top traders. I had a similar loss last April, after which I took a 3-week hiatus, downsized my account purposely below PDT, and put my studying in overdrive. I had the same first thought then, but I decided not to give up because I quickly realized the main reason for that loss was simply that I didn't really know anything yet (I was only two months in). This time, on the other hand, I was more experienced and already winning consistently over a long period of time.
I broke so many of my rules during these trades. Both SLS and TENX were super low float stocks running on huge volume without critical resistance nearby that were consistently bouncing above VWAP and breaking to new highs. I was holding short through HOD breaks, thinking the price HAD to come back down soon and I could reverse baghold as a swing or add higher for a bigger profit. I was over-sized. I KNEW these were all red flags, but I held anyway until it was too late and paid the price.
It was crucial to realize and accept that these losses were MY fault, NOT bad luck or random chance. This means that if I DO stick to my rules, I CAN continue to be consistently profitable. I just had to evaluate why I had become so undisciplined recently and what I need to do moving forward to prevent this from ever happening again. I'll elaborate on my key takeaways from this experience, both to reinforce them in my own mind and to allow others to learn from my mistakes:
First, I must say that OVERCONFIDENCE is the single deadliest emotion for an experienced or semi-experienced trader. I was on a hot streak - 19 green weeks in a row with a consistent 70% win rate, profit chart going straight up, and I felt invincible. This led me to become complacent. I began to feel like I would always be right in the end, so I could let the stock go against me further and perhaps even add at a better price, rather than taking a papercut and looking for a re-entry later. I no longer fully filled out my planner / scoresheet for every single trade. I was no longer doing my monthly deep-dive analyses, instead just glancing over my stats and moving on after a few observations.
GREED also played a large role. As I continued to see green, my mind gradually desired bigger and bigger gains. The combination of overconfidence and greed led me to become reckless. I began to take more positions at a time, not wanting to miss any potential trades. I began taking bigger position sizes - although I did have a plan for sizing up slowly, I was now doing so too quickly and aggressively, and was no longer following any sort of sizing structure. I became eager to jump into trades when I saw just one or two things I liked, rather than ensuring I had every piece of the puzzle. It all seemed to be working, until it didn't.
So, how can we mitigate overconfidence and greed? In truth, I already had rules in place to fight these emotions. And of course, I've recently done a deep review of my rules and strategies, making adjustments and improvements where I felt necessary. But regardless of how robust my rules and strategies can become, the problem is that I subconsciously stopped enforcing them on myself over time. I needed to change something so that constant reminders are forced upon me.
What I'm trying now is "Trading Posters," which are printouts I've posted at my workspace showcasing my rules, priorities, and ideal trader mentality. I actually wanted to make these a long time ago, and I wish I had done so. Every single day before trading, I'm forcing myself to recite these aloud - and of course, they'll also be right in front of me whenever I need to refer to them during a trade. This way I've effectively created an "exoskeleton" for myself that supports my trading. While I won't get into my specific rules here because every trader's style, goals, and life situation are different, I do hope that this concept can be helpful and applicable to any trader reading this.
My next step is to create an actual blog (outside of Profit.ly) to document my trading journey and key takeaways at least each month or quarter. While the main goal of the blog at this stage will be to motivate myself (another "exoskeleton" concept), I again hope that it will also become a helpful resource for newer traders.