How I Handle Losing Days

It’s been a great year for the market — and for me personally. In the past month I’ve had my two of my best days ever as a trader. That was extremely gratifying.

But, as every trader knows, all hot streaks come to an end. And this is where the real challenge of trading happens. Every trader from penny stock players to retirement savers love to boast about their winning days and their best trades, but how you respond to losing days is even more important (at least in my opinion).

Trading is all about consistency, and not getting too high or too low based on your performance. I had a losing day the week before Thanksgiving, and it made me reflect on how I keep my strategy together on days like that.

So what do when I end a day in the red? First, I step away from my desk. This is something I do just to clear my head. But then I return to my desk to look back through my trades one by one, and most importantly, review the notes I made while I was making each one. I try to understand the headspace I was in when I formulated the trade and my rationale for making it.

This is where I start asking the tough questions. Was my decision for this trade based on a sound understanding of the market, or was it pure emotion? Did I act too quickly or too late? Should I have better managed my limit order? What was the chart telling me at this moment?

Sometimes the answers to these questions aren’t fun to deal with — I have to reconsider what I know, or think I know. It’s hard to accept that you’re wrong. But if you don’t you’ll just blow yourself up over and over again, even in bull markets. Sometimes I find that I did make all the right decisions, but the market just worked against me. Those trades are easier to swallow.

But even when that’s the case, taking a step back and looking at my trades objectively prevents me from getting psyched out and starting a negative feedback loop of emotional trading. That’s how I prevent one bad day from becoming five or 10.

The last thing I do is to try to walk away with one or two concrete thoughts about my strategy. After all, I’ve got to get right up and do this again tomorrow. So knowing that I have a better understanding of myself helps me get back on the horse the next day.

Disclosure: Warrior Trading is an editorial partner of Benzinga.