Q: On four different trades over the last month, I was in ahead of the crowd and in great position, only to lose confidence, get out at a loss, and then watch the things go up. I am scared now to trade and I need to take steps to boost my confidence. Will you consider this and make suggestions? Thank you so much.
A: You need to first take a detailed look at your stop loss strategy. When I hear these things, typically (but not always) it is because stops are set to tight and/or you’re trading extremely volatile positions. I would take the last 50 trades you made and were stopped out at loss in order to determine whether the stop strategy you are using (like one based on average true range) was effective. In addition, if you’re not using a consistent stop strategy in this regard (i.e. you are getting stopping out when you “feel like it or when it “looks good”) you need to start incorporating one right now. Being consistent here is important and will help improve your consistency overall.
As for your level of confidence, remember there’s no room for perfection in trading. Mistakes will be made and you will get stopped and chopped on good positions routinely if you’re doing a good job of managing your risk. After evaluating your stop loss strategy, I’d also look closely into how you position size and whether you are using any “scale-in” techniques. Both are integral parts of the process here.
Finally, the best way to restore confidence is moving onto the next trade once you taken time to fully analyze what has happened with your stop outs and you have established confidence in the exit strategy you use even with the whipsaws that are likely to continue to occur. If your methods are sound, four bad trades shouldn’t rattle your confidence unless they’re the only four trades you’ve made and the exit strategy is faulty by design.
