Trading is not a game of perfect, you have heard me say that often over the years. If your goal is to win every single time in this game then you are going to be very disappointed. Stock traders can get away with being wrong for a long while before getting it right, because that is what they have: Time. Option traders do not have that luxury, they need to be right in terms of direction and time in order to make an impact. But have you been on that nasty bad streak that really gets in your head?
Not only could the financial drawdown be challenging, but the psychological drawdown could prove devastating. Our natural instinct when fire is close is to step away from it, and not put our hands out to get burned! Take another trade after losing $XXX? Forget it! Felt that way before? How do we snap out of it?
As hard as it seems, the answer is to keep going. Take that next trade, even if it feels wrong. We’re not talking about chasing loser trades. Rather, clear your head, find the next idea and DO IT. The pain from recent losers is a very strong barrier to your next moves but I would say — GET OVER IT.
Tom Sosnoff, founder of Thinkorswim and currently with TastyTrade says it all the time. ‘Take the next trade’. Interestingly, I knew this but Tom was the first one I actually heard say it frequently and LOUDLY. Tom trades different option strategies for himself and helps others to ‘see the light’. Tom teaches his expertise to amateurs and professionals alike at tastytrade (and no, I am NOT Bob the trader on his site!).
He knows this to be true, because I’m sure there have been times where he felt horribly about a string of losers. For Tom, it’s rare that this happens, but eventually it hits us all. Does he give up? Not at all, he’ll embrace it and come to the next trade bolder and stronger than ever. I suspect an adverse move effects him for about one minute at most and then he moves on to the next trade. As for results, there is nobody who boasts a better record over the years than Tom. I’ve witnessed it first hand.
Real Money Pro Contributor Doug Kass reminds us the market has no memory from day to day, so why should we have a memory of bad or good trades? When we’re on a good streak of wins we feel emboldened and powerful. The basket seems so big we can’t miss a shot from anywhere on the court. But that can all come crashing down with a bad streak, as we’re only as good as our last trade, right? But, if that next trade doesn’t work — so what, take the next one.
I have a client (John) who has been learning about the pain and joy of trading for the last few years. As a novice, he was stuck in the 2008 washout (like many of us!) and gripped with fear, not knowing how/what to do. It was a dilemma; do we just accept the market failing, or do something about it? Fortunately, John is proactive! We talked about it and developed new strategies that he was comfortable applying. Today, he continues to evolve into one of the more skilled and savvy traders I have ever seen.
John takes the next trade, because he now has the skill, knowledge and experience to move on even if trades go against him. Further, he can make adjustments to bad trade results that may actually turn into winners. Imagine that! So, someone like YOU has seen the benefits of taking the next trade. No surprise here, John is a follower/believer in Tom Sosnoff and his strategies and approach to the game.
Bottom line, we are all shaken when a drawdown occurs. But it is at this moment that we need to strap it up and get busy, focused on the next big trade idea that will put us in a better place. Take the next trade – you’ll be happy you did. Bob Lang