Hosted By
Robin Dayne
"The Trader's Coach"

16 years as a trading and life coach

Coaching for:
 Individual Traders - all levels
Trading and Hedge Firms
 Brokerage Firms

Trading Mindset Focus:
 Managing Loses
 Establishing a Game Plan
 Removing Mental Blocks
 Reversing a Losing Streak
 Overcoming Fears
 Improving - Consistency
 Confidence and Certainty 

Top Ten Trading Mistakes/Solutions #9
Lack Experience Managing Losses, Financially and Emotionally
 
By Robin Dayne

Last week we covered the eighth topic related to traders who blame external things or events for their trading mistakes. You and only you are responsible for your trading. The mistakes discussed come from the top ten that come up repetitively in my conversations with traders.

Mistakes that apply to new traders will be marked will "N" where as all the rest apply to all traders at any trading level but all are important to be aware of.

Mistakes

#1(N) No Financial Preparedness
#2 (N) A Solid Trading Strategy - There is none or too many
#3 - Trading is Easy – early wins
#4 - They neglect to develop a detailed game plan to win
#5 - They neglect to set rules that will keep them safe
#6 - Traders possess patterns on how they dealt with success and failure in the past that now effect there trading today 
#7 - They trade with their emotions and NOT their intellect
Mistakes
#8 – (N) They don't take responsibility for their trading and blame everything else

Note: Mistakes will be list in priority order with the most important being the last.

As a reminder here is the Re-Cap of 1 through 6:

· Have a plan for how your money is spent in your trading day and life
· Set up rules to stick to the plan
· Minimize your losses and manage them
· Focus on one strategy till it's mastered
· Become a "digger" and fine tune each trade
· Trading is what you make it, have fun and learn
· Be a learning sponge
· Be flexible and change with the markets
· Create a detailed game plan to win – Profits, risk rewards, targets, why you are trading, markets, size, rewards, penalties
· Create Rules that will protect your cash. Find distinctions that fine-tune a trade. Work to be as precise as you can.
· Your, past beliefs, experiences, successes and failures will show up in today's trading.  Just being aware of them helps to keep them in control.
· Know when you are trading from an emotion verses your intellect. Work to break the pattern and get help if you can't.· Take responsibility for your actions
· Attack each and every challenge until you find the root and find a solution
· If you can't control what you want to do in your trading than it's critical you get help to reverse this pattern

Mistake #9 – Lack Experience Managing Losses, Financially and Emotionally

This topic gets down to the one of the biggest facing all traders new and experienced, managing losses. Losses are the number one thing that needs special focus, to keep under control. Every book written about trading usually covers this issue and how critical it is to manage.

One reason this always gets over looked by new traders, is that it's usually the thing that new traders want avoid. After all why does anyone want to look at losses, they're painful. A new trader wants to stay positive and focused on winning and so avoidance is usually how they emotionally manage their losers.

Yet avoidance is the opposite of what needs to be done for proper management and emotional control. Honesty and truth of ones trading works to fine-tune trades and propels a trader forward. 

By looking and examining each and every loss gets to the heart of the problem and working the problem through to a solution helps in growing profits. Profitability is what we all are looking for.

Part of trading success is always managing losses.  You hear over and over "manage the losers and maximize the winners."  Inexperience and being seduced by the money and markets when first trading begins is the typical mode and mental focus.  Than over time when things get out of control and losers are over taking winners, patterns and repetitive errors over take the trade, finally the new trader comes to realize how important this management is to success.

OK so what are the signs of being out of control?

· First a pattern of one losing trade out of another with the same results is a sign there is not control emotionally or financially
· Not looking at the loss and ignoring it and going onto the next trade right away, is a sign there is mental mode of avoidance
· Not facing the results of the loss or being honest about each trade good and bad has a trader into denial, instead of being honest with their trading
· Losses out-weighting winners means there is no financial management
· Lack of rules to keep things under control shows there is no "plan" to protect cash, overall profits and mental control

These are all signs emotional and financial management doesn't exist.  That mentally it's feels better to avoid losses than fix them.

So what's a trader to do new and experienced? Here are a few things to incorporate in your trading strategy that should have immediate results.    

Steps to gaining emotional and financial control of losses.

1. Look at each loss as a way of moving forward, a way of fine-tuning and a way of emotional control, by shifting your thinking and definition of losing means to you:

a. Take a piece of paper – and answer the following question with one answer per line  - "What's great about losing?"

Doing this helps to re-set our thinking of how we define losing. Traders need to get excited when they lose so they than go into thinking they will learn something new that will help their trading improve. This one change could make all the difference in the new trades to follow.

This will change the mind-set and also will help to go into avoidance mode.  Also it shows an honesty of ones trading. Being real and facing the truth.

2. Examine each and every loss IMMEDIATELY after it happens. I know, you might be thinking that you could than potentially miss out on a good trade and you know, you do run that possibility but you will also avoid another losing trade and will modify the next trade potentially eliminating the error altogether. Your trading can take quantum leaps when implementing the changes in your trading.

I call these, Ha-Ha's and they can be literally worth a fortune. Now doing this, takes courage and of course discipline but it also has a side effect in that it will also remove the emotions of the moment. Keeping your mind occupied protects your thinking to go in the wrong direction. Just try it, you will like it and you will be rewarded with clear and focused thinking.  All things good for your trading     

3. Create some rules that will protect your cash. Rules are designed to protect profits. Also the rules you need in the beginning when you start to trade can be changed to different rules, as you become more proficient. The type of rules should protect capital.  Something like:

a. When I am up $XX I will close my trade and lock in profits. Again this could be different amounts in the beginning and change over time.

b. If I will examine each loss right after it happens

c. After 3 losing trades I will stop for the day – This is a great rule that will help to avoid repeating losing patterns and break the current losing streak. It will also help to let go of the "beat yourself up" mode that tends to happen after several losses.  

d. Set up some rules for the day, week, and month that protect your cash. It's also a good idea to make these rules a part of your overall- trading plan.

The bottom line is to, face your losses. Attack them with the confidence that the solutions will make them disappear and lead to more profitable trading.

Working through each to good solutions fine-tunes your approach and strategies.

 Make this a MUST in your trading plans.

 Have fun!  AND Great Trading!

Disclaimer/Nondisclosure 

ALL the information in the Robin Dayne Newsletter is for educational purposes only and is the sole property of Robin Dayne Inc. (RDI) and may not be duplicated, recorded or reproduced in any way and includes: verbal, print, e-mail, or any media vehicle without the written permission of RDI.

Trading Room Update ( S&P)

All that I am hearing and reading from the very good, day trading, crowd is last week was a tough week to trade.  It will improve.  This is what trading is all about. 

Thought for the Week: "Get through the tough times with patience and discipline; the good times will show up."   John Hay

This year has been a very exiting time for traders and investors. We have seen a steady climb in prices with controlled pullbacks in the broad market and gold.

Using technical analysis we are able to quickly and accurately make informed decisions just from looking at the charts. In the charts below you will see how simple chart patterns along with support & resistance levels can provide excellent low risk entry points. Also you will see how candle stick charts can be an early indicator for prices to reverse direction.

DIA ETF – Daily

The DIA (Dow Jones Index Fund) is trending higher. By applying some basic technical analysis you are able to time your entry points having the odds in your favor.

In this chart I use two simple forms of analysis. The broadening formation (red trend lines), and horizontal support zones shown in blue.

Broadening Formations: This is when the price becomes more volatile making higher highs and lower lows. I think of it as one of those Megaphones for talking to large groups of people. So when a chart has this pattern it's virtually yelling at me and I start taking profits or tightening my stops.. Read More

Another fantastic week for precious metals as the US dollar continues its slide lower. Energy commodities like oil and natural gas are having some difficulty finding buyers.

When commodities start to trend they become very profitable for those riding them up or down. But when a short term trend starts to virtually go straight up (parabolic) then we must be prepared for a sharp pullback. Once the price starts to slide I figure a lot of short term traders will begin locking in profits, sending gold down.

I've recently discovered the Money Flows table from The Wall Street Journal and I gotta say it's awesome. My thanks to John Townsend for bringing this resource as well as hidden gem play – DFSH – to my attention.

The Money Flow table calculates whether money is moving in or out of a stock or ETF on a given day, and whether it is selling on strength or buying on weakness.  It also tells you if there are more up or down ticks.  Really powerful stuff in my opinion.

For example, the GLD gold fund continued its move higher today as it must follow the underlying commodity. And though the fund traded higher institutions were selling their positions in masse. For every 9 block trades bought there were 100 block trades on the sell side. This is strong evidence that institutions/large traders are moving out of GLD. Indeed, over $161 million dollars moved out of GLD today alone and a total of $251 million dollars in the two days preceding today.

The SPY fund was 12 buy orders for every 100 sell orders. Today alone over $675 million was flowing out of SPY which his CRAZY huge. Read More.

Special Biotime (BTIM) Stock Update
November 29, 2009

I never thought I would see BTIM down $3.00 after the China deal was announced. Wrong!! Risk was down $3.00 and now up $19 over next 2 years. 

I won't go over ground covered in last week's email. Monday was not margin selling. Over 150,000 shares traded on a break of $4.00 after 3:30 PM and closed on the low $3.75. 

I tried calling the company after I got home from jury duty. No answer.  My first thought the company called the 8 million warrants. But BTIM wrote in an offering memo that the company may call the warrants if the stock traded over $4.00 for 20 days. Yesterday was day 17. No calling of the warrants I thought.  

Today, BTIM traded down hard to $3.17, hitting the 200 DMA and a congestion sideways support area ( see BTIM 2 year chart ). I estimated BTIM traded down there on less than 100,000 shares.  The stock rallied back nicely on nearly 400,000 shares traded in total and closed on the afternoon high tick of $3.58. I like today's reversal tail on the chart.  

I spoke to the Al Kingsley, BTIM largest holder and head of his money-management firm Greenway Partners. I asked him point blank did the company call the warrants. His answer, "Did you see any announcement?" No. Then that's your answer.  

He added that the company's been through a number a bear raids throughout its history. Haven't you over your investment career? Yes. Well? I noted BTIM's short position was nearly 20% of the public holding or 1.7 million shares short. So, it's reasonable to assume this was another bear raid given margin calls and the breaking of the 50 DMA last week. Pure and simple, no secrets here.  

The drop shouldn't have anything to do with fundamentals. Even animal testing won't start until mid-2010 and human trials by mid-2011. No one's died yet! Read More.

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"Managing The Trading Temperaments"

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Robin Dayne