A friend of mine in the pit had been having a rough time lately when he asked me a typical question among us traders - How do I come back from a loss? Since he had been having a "rough patch" and not just one bad trade, I gave him the following advice that is to be used over a period of time.

First I asked him, "What does your trading journal look like - or maybe you don’t have one?"

He didn’t think it was necessary, which was his first mistake. It is critical to keep a trading journal.
In my journal I ask myself everyday "Did I follow my trading plan properly? Did I do anything wrong and if so, why?" If I did follow my plan correctly but I lost money, I am not hard on myself. Sometimes this happens! If I didn’t follow my rules but still made money, however, that’s a problem.
I highlight these days so I never repeat this fatal flaw. One of the worst things you can do is ignore your rules and make money, because then you feel that "winging it" is a good plan. It is not.
If this happens, you have to ask yourself;''Why didn’t I follow my rules?"Was it lack of confidence in the system? Fear? Or did my ego want to be the hero that sold the high?"
If you lack confidence in a system, paper-trade it religiously and keep a massive amount of statistics on the outcomes. Be honest with each trade and if the results are good, immediately ban all second-guesses.
If you are playing blackjack and the dealer has a six showing while you were dealt a ten & a nine for nineteen, would you HIT IT because "maybe this time the dealer won’t bust!?" Of course you wouldn’t! You know that the long-term outcome of that decision would be certain disaster.

It is the same with trading: don’t question a trade if the statistics show it’s a winner over the long term.
Fear also exists when a trader doesn’t believe in his system yet. Or it may just be the fear of being wrong, which is another ego-based problem. You have to let go of being right. Trading is about probabilities and making money; not about being right or wrong.

I’ve found that traders who used ego-based decisions to mess with their system or break their rules added little to no value to their trading. In fact it almost always hurts more than it helps. Trading for ego satisfaction is not a good idea, because your ego risks getting damaged during a rough trading patch.
I like to go back and look at my trades over the last week and last month, to see how they performed. Am I repeating my mistakes? If I bought or sold too soon, I want to find out why. Be honest, and ask good questions: "What worked?What will I do differently next time?What was I feeling when I ignored that trade?"
Keep notes on trades you liked but didn’t make.What held you back? Do you notice any patterns causing you to miss opportunities? FIX THEM!
My friend listened intently and took notes. He will be a better trader for it.
Best trades to you,

Larry Levin
President & Founder- Trading Advantage