NOT AGAIN! - I just got off a long call with a friend who blew up his account. He was devastated. We talked for a long while and I did what I could to comfort him and make him feel better. He was far less hurt by the financial loss and so much more beaten down by his failure to stay in control and maintain discipline. He has gone through this before many times and wants desperately to be able to trade for an extended period with success. But each and every time he trades, he ends up blowing up his entire account within months. So what does it come down to? It comes down to one thing really and that's knowing how to take a loss. Many traders simply can not accept a losing position and will hold on and average into the losing position until eventually the market take them to the cleaners.
CHANGE - Albert Einstein defined 'Insanity' as "doing the same thing over and over again and expecting different results." I told my friend he was lucky as his problem was fixable. It wasn't as though he wasn't able to identify good trades. He knew how to find the good trades. He just could never take a loss. Each time he blew up and came back, he made the same mistake. I told him to fix the problem he would need to do things differently. The next time he tried to to trade, he should make sure that no matter what and at all costs, if a position hit a level that he had initially determined would be his stop-loss, he should exit without thought. I told him needed to be religious with his stops and needed to get to a point where he could even feel good about taking a loss, as hard that might be.
WIRED - As human beings we are wired to always be thinking about what's right and what's wrong, what's good and what's bad. So when many people set out to trade, they will associated losses with wrong and bad and as a result, do not want to be labeled that way. So what do they do? They hold on until they are right or bust. But losses in trading are a part of the game and need to be embraced. If you're not taking losses and having bad days then something isn't right. So just like you feel good about taking a profit, you need to also feel good about taking losses. There are many people out there that don't like showing weakness in life and refuse to be wrong. But if you apply that mentality to trading, you are going to be in major trouble. So learn to love the losses and make sure you are taking them.