We are all human, and we will make trading mistakes, even in a bull market. Yes, it’s frustrating to do so when trading “should be easy.” (Hint: It never is.)
So here’s my advice on what to do when you make a mistake.
Remember to keep emotions out of it
I’ve said this many times: Trading is not a game of perfect, and the mental aspects of trading are difficult to manage.
When we invest our emotions along with our money, we open up the prospect of making trading mistakes and losing for the wrong reasons. Why are they wrong? Simply put, we “feel” or “believe” a trade will work out just because we are involved and we “have to win.”
That is clearly illogical.
The markets don’t care about your thoughts or feelings. And if you take a loss personally, it might be difficult to overcome. If you can’t move on, then what?
Use technical analysis
We can move away from emotional decisions by using technical analysis. Sentiment and technical indicators deliver information and data. They tell us what the market is doing now and might do next.
Always start with price and volume. Then weave in the other indicators you like for a fully picture. Is it time to buy? Is it time to sell? Let the markets tell you.
Review trading losses
Nothing is ever certain in the world of options trading, and not every trade is going to work out. Even the biggest and best ideas can fall short of expectations.
When we have a trade go against us, whether it is a stock, option or commodity, analyze the result post-mortem (when the trade is closed). What went wrong? Can anything be fixed? Looking ahead, what can you do differently next time?
As painful as it might be to review a trading loss, it helps us to understand the trade and our behavior.
Losing money is not a fun experience for anyone, and to lose by making trading mistakes (bad trade, wrong timing, too large) is even worse. The key is to learn lessons. How we handle mistakes determines our future successes and failures.
