Tonight I got an email asking for my thoughts on how to recover from a trading mistake. I think the answer I gave applies to various kinds of situations and will be helpful for other traders who are struggling with a set back. This is what I replied:
Dear fellow trader,
I do believe the root of the problem you describe might very well be due to the ‘fear of missing out’. That leads to being invested in the markets at all times. This in turn leads to bad performance as you ‘ride them up’ just to ‘ride them down’ after they have finished their run. You use the term ‘investments’. I strongly recommend avoiding this word like the plague. You will notice the subtitle of my website is “Trading” High Potential Stocks.
To make a long story short, the key is ’emotional detachment’. The more you put yourself into a situation where YOU are in control as opposed to being controlled either by fear, a bear market, your greed, your opinions, other people’s opinions etc., the higher the odds for success.
My suggestion for your problem is to go to 100% cash. Take a break. This creates emotional detachment. This will free your mind. You will be able to sleep well at night. Stay in cash for at least 2-3 weeks. Do not watch or do anything market related for at least 1 week. Learn to fight your inner demons. Overcome your ‘fear of missing out’. Then, before you start trading (not investing) again, make the following vow:
These are my rules: “Fill in your set of rules”. I will stick to my trading rules and be disciplined. I am now in control and I will do everything in order to STAY in control.
Remember: Great traders offer no excuses.
Es ist nicht genug zu wissen – man muss auch anwenden. Es ist nicht genug zu wollen – man muss auch tun. – Johann Wolfgang von Goethe
My public list with all my charts can be viewed here:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2791469
Buenas noches!