No one likes to take a losing trade, none of us are trading for the purpose of losing money. Yet it is a reality of all trading, we lose at times. Trading is a journey with a lot of twists and turns in the road. Not everyday is a winner, in fact often times day trading is a grind. To be a successful day trader a person must learn to accept that this path is full of twists and turns.
We have a nearly 70% win ratio, which means that we lose on average 3 out of every 10 trades. That means we average at least 1 if not 2 losing days per week, and sometimes more as we did this past week. Averages hold up over the long term, but in any given week it can vary. It is rare to take more than 2 losers in a week, but it happens. This is just a fact of trading, we don’t always get on the right side of the trade. But the days that are exceptionally difficult to handle are the days when it comes down just to our stop level, and then reverses course to end up a profitable day. On such days it can seem as if the universe is conspiring against you, that if you just would have held longer…look at what you could have done.
Trade without stops?
One could certainly avoid this particular frustration by trading without any stop losses. Just enter the trade and ride it for profit or bust. That is certainly one way to trade. But in our trading such an approach even though would have gained for a few trades, overall in past 7 months would have cost over -500% in additional losses. So while it would prevent the frustration of exiting a trade at a loss, only to see it run. The bottom line is over the longer term, we’ve found it to be not as profitable. Which is why we employ stops when it is clearly going against us.
So we accept the frustration of seeing it turn after we exit, as a part of trading. We will at times re-enter a trade as we discussed in a previous blog. But that is rare, most often once we are out of the trade, we are done for the day.
Each trader must learn to accept that losing trades will happen, to shrug it off and get back at it the next day. So while we were down a bit this week, we’ll return again next week and look forward to another exciting week day trading SPX weekly options.