Trading When Markets Move Against You
In this video, Roger Hawes, an analyst at Corellian Academy, discusses the importance of discipline when managing orders, especially in market downturns. By quoting Warren Buffett "we don't have to be smarter than the rest, we have to be more disciplined than the rest", Hawes emphasizes the importance of discipline when managing orders in trading.
Specifically, Hawes delved to the psychological effects of fear and greed on decision-making when trading. An example is provided, which illustrates the risks involved in selling short positions without a stop loss, resulting in substantial losses if the market bounces. The rollercoaster ride of trading is highlighted, from the frustration of not acting on a trade to the regret of cutting a position in an angry fit.
Hawes emphasizes the importance of disciplined stop-loss strategies, illustrating how well-placed stop losses can prevent turmoil when markets move unfavorably. The concept of stop loss is reframed as an “insurance policy”, providing traders with a safety net when losses are an inevitable part of trading.
It is encouraged that traders follow a well-planned strategy, evaluate their strategies continuously, and learn from their mistakes. Disciplined stop losses are portrayed as preserving capital, fostering confidence, and earning the right to continue trading. The emphasis is on sticking to the original plan and not succumbing to anxiety when the market approaches.
In conclusion, Hawes argues that traders should accept their losses as part of the trading journey and turn them into "good losses" by implementing disciplined risk management. To decompress and reset during challenging times, it is recommended to take breaks. A disciplined approach will build confidence and allow traders to return to trading, learn, adapt, and eventually trade more consistently.
