Category Archives: Mindset

Dealing with losing trades

I knew there’d be a time when I’d need to write this and I think now would be a good time. Here’s some advice from various traders which are worth a watch/listen when I’m losing money.

The first thing to do after a series of losers


  1. Step back
  2. Take time out
  3. Organise your thoughts
  4. Proceed

Take some time to reflect on what’s happened. Log and review my trades. Then go through the four Ms of trading. Did I:

  1. Manage the money: Didn’t risk too much, traded with a stop loss, was realistic with the entry and exit. The key is to always be able to fight another day.
  2. Manage the markets: Trading the right markets at the right time. Am I being realistic trading these markets? Are they too volatile? Am I stretching myself too much to cover those markets?
  3. Manage the method: Did I break my trading rules? Am I making a regular mistake? Am I being patient?
  4. Manage the myself: Am I supported? Am I well rested? Was my mindset in a good place? Was I tired, distracted or emotional? Are there identifiable trends in my own habits?

Putting a trading loss into context

The whole video is important to watch. Once you’ve reflected, forget about what’s happened and move on with your plan. Managing emotion is what will make me a good trader.

Not making progress

Experience in the markets is so valuable – if you can get a years worth of trading experience without loss, you’ve just gotten an education which didn’t cost you much.

When things aren’t going well don’t lose the faith. Self-belief is a really important commodity for a trader, build on your self-awareness and self-belief through analysis of your trades and visualising your trades.

Keep reviewing your trades, build on your self-awareness and identify any learnings – small tweaks will make the difference in the end. And remember trading gets easier the longer you do it.

Coming back from a drawdown

A drawdown can be a few weeks to a few months for a swing trade. The key is to keep trading – don’t stop trading, take a break if you need – but stay in the game. The most important thing to do is downsize the positions. Build up your track record and confidence, then increase the position again.

Coming back from a big trading loss

It’s possible to come back from big loses, take time out to put a plan in place, then start again. Expect it to take a long time (maybe years) to come back from.

Better goal setting & position sizing

Update: Comments from Charlie

Up until recently, my goals have been set pretty loosely. Currently (Feb 17) my goals are:

  • This month: be consistent trading my strategy
  • This year: get my account to £10k
  • By 40 (5 years): get my account to £100k (this seems light years away right now. The account that is not the age 🙂 !)

If I’m ever going to make the journey to professional trader, I need to get a little more focussed about it. Given I’m swing trading I’m happy to review progress on a monthly basis but my monthly targets could do with being more specific.

Time to get compounding

Compound interest is the eighth wonder of the world. He who understands it; earns it. He who doesn’t; pays it.Einstein

Compounding returns is where it is at. Safely using leverage, limiting my risk and compounding any returns I make is the only way I believe I can achieve my goals. For now I’m just going to focus on this year’s goal. (I’ll worry about the 5 year one later.)

To get to 10k in the next 10 months (end of this year) I need to be aiming for the following targets.

MonthStarting balanceMonthly profit% ReturnTotal profitEnding balance
March£7,070.00 £250.993.55%£250.99£7,320.99
April£7,320.99 £259.893.55%£510.88£7,580.88
May£7,580.88 £269.123.55%£780.00£7,850.00
June£7,850.00 £278.683.55%£1,058.68 £8,128.68
July£8,128.68 £288.573.55%£1,347.24 £8,417.24
August£8,417.24 £298.813.55%£1,646.06 £8,716.06
September£8,716.06 £309.423.55%£1,955.48 £9,025.48
October£9,025.48 £320.403.55%£2,275.88 £9,345.88
November£9,345.88 £331.783.55%£2,607.66 £9,677.66
December£9,677.66 £343.563.55%£2,951.22 £10,021.22

So for March (this month) I’m aiming for 3.55% return. Oooff, feels like a mountain to climb; especially with my current position sizing (0.5 – 0.7%) and some months will yield next to nothing in reality.

However, knowing the percentage is great for me because it means I can forget about the P&L and just focus on a percentage return. Some months I’ll make more, some months less.

So how much do I need to make per trade?

What I wanted to work out next was given a 0.7% risk on a trade how much RR (Reward to Risk) do I need to aim for to bring in the bacon. Here’s the crude / roundabout way I worked that out.

    \[ Exp. Rtn = Risk ((n_W * RR) - n_L) \]

Exp Rtn = Expected month end profit (in £s)
Risk = Position size (in £s), equivalent to 0.7% of the account balance
n_W = Number of winners
n_L = Number of losers
RR = Reward to Risk ratio

I know the return I am aiming for (£255); so I need to calculate what RR I need to aim for on each trade to achieve this return. So rejigging the equation.

    \[ RR = (\frac{1}{n_W}\))(\frac{Exp. Rtn}{Risk}\ + n_L)\ \]

Last month there were 24 DST set ups. Assume we average around 20 set ups per month, of which, we can catch 12 of them (around 2/3rds) and my win rate is around 50%. Then my expected return for the month would be …

    \[ 1.85 = RR = (\frac{1}{6}\))(\frac{255}{50}\ + 6)\ \]

Therefore I need to aim for 1.85 RR for each trade – averaging £92.50 on each winner and losing no more than £50 on each loser.

1.85 RR seems more manageable a target to focus on than £255 for the month.

What’s my theoretical maximum position size

In theory, if I’m trading 17 markets (the major crosses which I can scan each day) and from my back-testing the biggest run of losers is around 6 or 7; then I could have a losing streak of 119 trades! However, not all of those 17 markets are correlated together – most are traded against the dollar though, so let’s assume 2/3rds are correlated. So in theory of those 17 markets, 11 might all experience a losing streak in one go.

To avoid wiping out my account, the maximum position size I could safely trade would be:

    \[ Max Pos = \frac{Acc. Size}{(No. Mrkts * Losing Streak)}\ \]

Acc. Size = Current account size (£7070)
Max Pos = Maximum position size per trade (of all units) in £s
No. Mrkts = Number of correlated markets that I could be trading
Avg Mrkt Losers = Average market losing streak from back-testing

    \[ \£92 = Max Pos = \frac{\£7070}{(11 * 7)}\ \]

The cost of taking money from your account

As an aside I saw this chart on the effects of taking income out of your trading account over time.

The chart shows a profitable trading account with a +/- 20% P&L swing year on year (I don’t recall the total timeframe.)

The x axis shows trades taken on the account, y axis shows total return. The assumption is that the trader takes a fixed percentage out of their account every 6 months.

Each line shows what would happen to the final account balance if you take money out of the trading account.

Consumption of a trading account over time

Update: Comments from Charlie

Went through this with mentor Charlie and he had a few comments for me.

  1. The compounding period is too short. Need to allow time to get comfortable with the new position size, before compounding again. He suggested once per quarter or 6 months
  2. Agreed it was best to focus on the RR and % return rather than the P&L of each trade

Mindset: Method hunting treadmill and importance of risk management

Trading is about managing pain, you’ve got to get used to losing and not thinking that you’re making a mistakeanon trader

Just heard an interview on Chat with Traders and felt there were a number of great pointers for people like me grinding it out in the early parts of the trading journey.

One thing that really surprised me is the part on systemising a strategy and how the discretionary element of the strategy can make something that seems profitable, unprofitable (starts at 14:40).

The following also felt particularly applicable to me and some of my old habits:

11:52 – 14:15 The ‘method hunting’ treadmill of new traders who obsess over entries and win rates.
21:20 – 22:24 Really understanding your strategy and accepting a lower win rate.
33:28 – 41:35 The importance or risk management and position size
49:30 – 52:14 Lack of risk management for a given strategy and not looking at position size, market correlation and trade approach together
52:14 – 53.45 The mistake of trying to achieve a linear performance and not truly appreciating that you win some, lose some.
53:50 – 54:40 Why you should only review performance in batches of trades so your changes are valid and meaningful.
55:50 – 56:03 The best advice of all, riding out the pain of a run of losers

Some other good quotes

(new traders) focus on the entry and when things stop working they go back to the drawing board … down the rabbit hole looking for Alice. That’s the treadmill most retail traders get on in the beginning. We call it method hunting.
new traders aren’t willing to accept a lower win rate because it doesn’t feed the psychology. They don’t want to experience any pain … human beings are always uncomfortable with risk but it’s really about how you manage it (that makes you a successful trader).
Being a good discretionary trader is about managing discomfort
The most important thing is risk overlays: how you bet, what size and how you’ll adapt to volatility over time.
Each time you trade the deck has been reshuffled and if you lose it really doesn’t mean anything … you win some you lose some and you have to be comfortable with that. So start thinking about blocks of trades rather than analysing one or two losers
If I lost this trade it must mean I made a mistake, and if I win this trade it must mean I’m pretty smart. Unfortunately the truth is neither is true. You win some you lose some and you have to become very very comfortable with that and grind it out