Trading Psychology | Why Our BRAIN Makes Recovering from Loss SO HARD transcript

welcome to today's Deep dive into everything you need to know about trading psychology and this little phenomenon that occurs inside our brain after we take a big loss which makes us especially susceptible to making additional mistakes and losing more in today's episode I'm going to share with you some tips and tricks you can Implement in your own trading starting today to number one help you prevent falling into the Trap of a spiraling draw down and number two to put you on a recovery plan to help you make back some of those losses if it's already happened to you my name is Ross Cameron I'm a full-time Trader and I funded my first account in 2001 in January of 2013 I created this YouTube channel to send the lad back down to aspiring beginner Traders perhaps like yourself who want to learn a little bit more about the strategies that I trade every single day now if you are a subscriber on the channel and I hope you are you'll know that I upload my recaps every day whether it's a green day or a red day but yesterday was not an ordinary day yesterday I took the biggest single trade loss of the entire year and I finished the day max loss in the red and so the rules of the game changed coming into today in fact I had to begin phase one of Trader rehab with the blrp the blrp that's the big loss recovery plan and we're going to jump onto the screen share here into the slide deck and I'm going to start walking you through how to reset your brain after a big loss this is is one of the biggest challenges with trading we often say that trading is 50% skill and 50% psychological it's your mental game up here and in this episode I'm going to share with you some tips and tricks to help you improve that mental game so we're going to go full screen on this slide deck and we're going to start by talking about what happens to your brain after you take a big loss so we're going to think back to what happened to me yesterday I took a trade where in one trade in about it was less than 5 minutes I was down over $25,000 now that's a pretty big loss certainly a lot to lose in5 minutes although I've suffered worse but the immediate response the immediate reaction is an emotional reaction right that's like getting kicked right in the well you or punched in the face let's say that punched in the face it's an emotional reaction I feel anger I feel frustration now some people might feel disappointment and sadness and those are feelings that I have as suppose a little bit as well but the first feeling that I have is anger frustration and disappointment in myself I suppose like I'm such an idiot I can't believe I did that but here's the problem that such a big emotional reaction that it creates these terrible feelings so now I'm sitting here burdened by all of these bad feelings and when you have a lot of bad feelings what do you do you do almost anything to make them go away and in the context of trading how would I make all those bad feelings of disappointment and guilt go away well the fastest way is if I could recover that loss almost immediately and that is the biggest trap in the market that leads people into these downward spirals so what I end up doing and this is very common for beginner Traders what beginner Traders will end up doing before you've sort of learned about this phenomenon is you engage in Emotion seeking actions what I mean by that is you take steps to eliminate the bad feelings which often results in Desperate attempts to find winning trades to offset your losses so you no longer have to feel bad about yourself right so if you lose 25 Grand but you make it back 5 minutes later well all is well that ends well you no longer feel like an idiot because you're back to break even and so what most Traders are going to do is they're going to start thinking well all right I lost $25,000 so all I need to do is buy 25,000 shares of a stock and make $1 a share or maybe I could buy 50,000 shares of a stock and 50 cents a share is all I need and I'm telling you when you are in that mindset the rules of your strategy are out the window you are now trading based on impulse and emotion it's just it's like the knee-jerk reaction that you know you get knocked down and immediately you're jumping back up looking for anything that'll move so this begins this sets off a downward spiral so you have the emotional reaction which look I'm going to feel that too I take a big loss I'm going to feel anger frustration disappointment but the difference between a beginner Trader and a more seasoned Trader is a seasoned Trader is going to recognize that that type of loss can create emotional compromise where we're no longer able to think clearly and thus we're able to intervene before taking the emotion seeking actions or we at least recognize that we're at a we're very susceptible to falling into that type of behavior and that type of pattern and so we're on alert for it so as a beginner emotional reaction that's that's the Catal the catalyst is the loss and then you have the um the reaction so then you've got the emotional reaction and then that leads into um the steps to alleviate the feeling the pain which is trading and what that means is you're trading low quality so you start trading low quality setups and what happens when you trade low quality setups your profit loss ratio goes down your accuracy goes down and so naturally you suffer more loss and then the emotions get bigger and now you see where we're going this is where it becomes really dangerous in a matter of hours I personally have had massive Spirals and I've seen it happen to other Traders now the downward spiral for many beginner Traders starts with a poor track record so if you don't already have a track record of self-confidence then you you're so much more likely to fall into these traps of just trading pure emotion and getting frustrated so you've got a poor track record that feeds into poor self-confidence and then you have higher pressure because all of a sudden you're feeling like I've put all this time and money into trading I'm not finding success I need to turn this around and so now with more pressure you start taking more trades but without the track record to support it and all of a sudden you're building the losses you're you're fueling a negative track record and a and the downward spiral is getting bigger and bigger and bigger so let me share with you the lessons that I learned for my biggest year-to day draw down which was actually not the loss that I just took yesterday but it is actually more interesting and what I learned from that loss and of course I've learned from all these losses I've taken over the years are some of the lessons I'm going to share with you today that I am implementing right now after yesterday's big loss to help avoid this becoming an even bigger draw down than the one I had earlier in the year so you'll be able to implement all of these tips and tricks in your trading today so this was my biggest draw down of the year it was a $ 28,40 181 draw down and it happened over the span of 2 days now I'll put it in context I'm at $1.4 million on the year right now but when I took that loss I was at about 200,000 on the year which meant I gave back a solid 10 12% of my profit on the entire year in two days that hurts that doesn't feel good and unfortunately I made the loss a lot worse than it needed to be this right here is not a good example of discipline this is an example of what I don't want you to do so what happened on day one on day one I went into the red on my first trade all right so I got knocked down and I came back swinging hard and I got myself back into the green and you know what any day where you go from red to Green you got to be grateful because you've already had a warning flag a caution flag out you went red and you fortunately made your way back to green don't overstay your welcome but I did I overstayed my welcome and it looks like in one trade I went back to break even and in another trade I went down to red and then I kept trading now this should have been the time where I would have said I'm going to walk away why Fight It The Market clearly is not hot I went from Red I went to Green now I'm back to Red let's walk away but I got stubborn I kept trading I had a little little profit and then a little loss a little profit a little loss a little profit and then uhoh a bigger loss and another bigger loss and then a little bit of a recovery and then another big loss and I ended up finishing the day down nearly $10,000 if I walked away right here I would have been down like 1,200 who cares now for me my daily goal is 5,000 so to be down 1,200 in one day it's negligible I can make that back in one decent trade easily but I got stubborn now there was something about that particular day that you know I I refuse to walk away and this this is something you always have to ask yourself am I emotionally compromised today is there something bothering me today that's going to make me more apt to be as an example my biggest red day of my entire career you want to know what day that occurred on my birthday my biggest red day prior to that you want to know what day that occurred on the anniversary of the day my father died those are big emotional days on my birthday I feel like I have something to prove I want to make sure it's a great day I got stubborn just wanted to recover just wanted to get back to green and didn't happen the anniversary of my father passing away you know I there's a lot of emotion in there so all a sudden I didn't even realize it but it kind of snuck up on me and I became emotionally compromised and the problem with becoming emotionally compromised is it can be a very fine line between being you know in control and then all of a sudden the emotions have taken over and they've dictated your behavior because once you cross this point of no return there's kind of no going back it's very hard once you've fallen into what we call emotional hijack you are you're literally hijacked by these emotions they are dictating your behavior and the logical part of your mind that has created this strategy it's gone it's totally gone so guess what happens day one for whatever reason I don't recall what it was this time but for whatever reason I got stubborn I took a unnecessary loss I went down $10,000 on day two I I should have known that I'd be coming in on day two already emotionally susceptible because of the previous day's loss I was still in the shadow of that previous day I was still in the draw down of that previous day right I just lost 10,000 well in that case it was um you know 10,000 was about 5% of my yearly profit I was up 200 Grand I gave back 10,000 so it was already a decent amount I should have known that I was going to be emotionally activated and to be more careful and what did I do I came in on the first trade swinging hard and I was up on it for a second and then the bottom fell out and I'm down $20,000 that was my worst day of the entire year now I actually took a bigger loss yesterday which looks pretty similar but the story of yesterday is a little different as you're going to learn in this episode so that was day two so now I go from down 10,000 on day one to down 20,000 on day two and by the end of this two-day draw down I'm down rounding you know about I was rounding up on those two days but I'm I'm down $ 28,40 181 and now if we look at the metrics of those red days what was my accuracy on those two days 46% my average losers are 4,400 my average winners are 900 I mean I I was this is the worst example of my strategy these were the worst days so on day two when I came back I should have known that I was already very quick to be emotionally triggered and I should have taken steps to put on the guard rails to prevent having a second big red day in a row and that's what I did differently today yesterday was a big red day today I enacted the big loss recovery plan the blrp cuz I knew I knew that I would I would have such a tendency to try to find something I could swing big on and get myself back to recovering all of yesterday's loss that is just human emotion but I can be better than trading just on my emotion I can trade with reason and with logic after all that is what's made me a millionaire is following the very detailed steps of my strategy every single day but when I deviate that's when these mistakes and these draw Downs occur so knowing that that's a high likelihood of coming in on day two you have to put on the guard rails so let's talk about these tips and tricks to number one accept current reality instead of fighting it number two to avoid extended periods of low confidence trading number three to avoid the downward spiral and number four to recover quickly so Step One is accepting reality and acceptance is very hard when you're in the midst of just taking a huge loss especially when the market is still open the market open but you're down x amount and you you just think I don't want to walk away right now there's still a chance there's still a hope that I could make back some of this loss and so that hope is going to keep you coming back for trade after trade after trade but I'm telling you that on a day like that when you're already at at you know Max loss what's going to happen is you're going to dig the loss deeper and deeper and deeper and what I actually learned is that when I hit my Max loss of minus $55,000 when I go down that much if I continue Trad I have an 80% chance of doubling the max loss and going down 10,000 so given that I have an 80% chance of doing that if I'm just at 5,000 that is a very good spot for me to walk away because I'd rather be down five than be down 10 if I'm down 5,000 that's something I can recover from relatively quickly I start going down 10,000 15,000 20,000 now I'm going to be in a draw down that's going to take some time to recover from it could it maybe days but likely weeks po potentially longer depending on the state of the current market so accepting current reality is really important and I refus to do that on this day right here right here right here right here and I finally did it right here but this was at the very end of the day this was probably 400 p.m. so I pushed it all the way to the end until I finally had to give up and it was really just because I was out of time which is not a good situation to be in so acceptance is critical when you're fighting current reality when you're fighting to accept the situation that you're in it will lead you to continue engaging in the emotion seeking behavior of Revenge trading where you're looking for anything to trade to recover those losses you're upset because you're not happy with the current reality and you're trying to create you're trying to force a change in current reality but once you accept the reality of the loss you could begin to create and follow a plan for recovery and here's something I'll tell you when you're in the midst of Revenge trading and those emotions are so big and you feel this shame and guilt and you're angry and Furious it feels terrible once you've accepted this is where I am now it's about putting together a plan think about Apollo 13 remember that movie with Tom Hanks Apollo 13 they're up there in the in the space shuttle spacecraft whatever you call it and when they realized that they were running out of oxygen they could have been Furious they could have said I'm going to throw my water bottle bottle I'm going to break my clipboard I'm just going to be angry at everything what's that going to accomplish nothing it's going to accomplish them absolutely nothing so while it's okay to have a moment of anger frustration disappointment you pretty quickly need to accept all right guys this is our reality this is our situation and we got to come up with a game plan this is a survival plan and in a way trading I mean look if you're not able to figure it out you're not going to be here in the market so success means being able to take the loss let it roll off your back and quickly come up with your recovery plan and I'm telling you that once you accept the loss and you put the new plan into place whenever I'm sitting down after having a big loss and I'm like okay this is what I'm going to do these are my steps I'm going to do number one two three four five I always always feel better because now I have a plan now I've got a road map and it totally changes my perspective so it's like all right yeah I've got a ways to go it you know it's like imagine being lost in the woods you're lost in the woods and you're just you're freaking out what am I going to do what am I going to do and then all of a sudden you say you know what here's my game plan I'm gonna I'm GNA follow the stream and the stream's going to come out somewhere or you know what you come up with your game plan and once you start following your game plan now you have this motivation because every step you're taking is closer to you getting out of this Jam you're not digging the whole deeper anymore you're now on your path to recovery so acceptance is is the critical first step in the case of experiencing a big loss now I for me I find it really helpful to put loss in perspective and this is what I did back in in March when I had this loss so I was like okay put it in perspective yes it's not fun that you just lost $28,000 in two days uh but it could always be worse you could be down $280,000 in two days and you could continue to spiral and have 10 more red days and be down who knows how much and so putting it in perspective for me usually means finding a way to look at the glasses half full instead of half empty because when we experience loss we're immediately from this perspective of scarcity we've just lost something and if you can change that to a perspective of abundance that I have a lot I have a lot to be grateful for that is makes it so much easier to cope with the loss so this is something that I'm going to say is not possible for everyone and I'm going to tell you what do if this isn't your situation so for me I already was up $200,000 on the year so that made it easier for me to cope with being down 28,000 off the top I put it in perspective now as a beginner Trader your track record is the source of confidence it is your North Star when you're in a slump you're in the woods that's your North Star that's what you follow your track record is what you follow to get you out of the slump so some of you are saying well Russ I don't have a positive track record I I don't even I don't even make money then I'm gonna tell you I'm G to be real with you I'm not going to tell you what you want to hear I'm going to tell you the truth you should not be trading with real money you should go back to a simulator because if you don't have a track record of profitability in a Sim what are you doing putting real money on the line you really have no business doing it now I'll tell you I'll admit I trade with real money when I got started and I lost money I didn't even know simulators existed of course this was a very long time ago so I feel like maybe I had some excuses but I wish someone had told me early on Ross Hold Up use a simulator prove you can make money consistently in the simulator and then flip the switch and so I'm going to tell you right now to do exactly that if you don't have a positive track record then you need to go back to the simulator because the track record is the reminder that when you follow the rules of your strategy success and consistency follows so for all of our students at Warrior trading I of course give them a trading plan to follow and I and we give them access to a simulator to use so they can practice trading the strategies that they're learning following this plan in a safe environment and look not everyone's going to prove success in the simulator and if you don't then well it sure is good you didn't put real money on the line but the idea is that you trade in the simulator and you monitor your metrics and you make adjustments you start to learn things about yourself okay maybe I'm not good at trading this price stock maybe I'm not good at trading this time of day you make those adjustments to your strategy until you get get to a point where wow if I only do this this this and this I actually make money okay now practice doing that for 3 weeks you're green for three weeks in the simulator you do another week four weeks that's awesome you got a month of profitability in the simulator that becomes your track record right so now when you flip the switch from trading in the Sim with 100 shares to trading with real money live 100 shares you have this is your source of confidence as long as you do exactly what you're doing here you follow the rules of trading that type stock that time of day those entries those exits everything else then what we want to see is this translate now again again you want to trade in the Sim you know 30 days 60 days 90 days however long it takes you to have basically a month of profitability and then you flip the switch and go live and you want to do that again with small size and see if you can get 10 days of profitability 14 days 30 days of profitability doesn't mean you're green every single day but it means you're consistently green more than your red so the track record is also reminder that success is not the result of emotional hijack it's not the result of gambling with your account it's not the result of making impulsive decisions it's the result of being disciplined your metrics are a reminder that if you can reset and go back to that point following your rules the profit to recovery right it's in the market it's easily obtainable and that is a really exciting moment that for me I I remember having this thought early on in my trading career you know I I had taken a lot of losses I'd incurred debt to learn how to trade because rather than paying my bills out of the cash I had I was paying bills on credit cards so I could keep that cash in my trading account I remember getting to a point where I was sort of calculating how much I had into this whole thing how much I'd lost trading how much was on my credit card and I was like wow these are big numbers and I said to myself you know what Ross though here's the thing if you can consistently make $200 a day consistently $200 a day it's a th000 a week 1,000 a week that's $52,000 a year if you could do that consistently you will make back everything you've put into this times you know I mean depends on how long you trade but you'll make it all back and the profit to make it all back is right there in the market as long as you can stay focused on these small steps today what's your job today your job today is to have the discipline to follow your rules and not overstay your welcome and that's when I became so crazy about being disciplined I just knew all I had to do was follow the rules and if I could follow the rules I was in good shape okay so track record really is everything and if you don't have it yet practice in the simulator until you've got one all right so now avoiding extended periods of low confidence is really important and I'll tell you why a loss of confidence during a draw down is common I mean look if if you lose 25 Grand in one trade or however much it is of the draw down a loss of confidence is to be expected you're not you know you're not going to be the only one that feels that way but here's the problem with losing confidence comp confidence and competence are key it's important to be confident but there's a lot of people out there that are confident but blissfully ignorant they don't know what they're doing and so they're confident but they're just losing money left and right now that's not a good place to be in you don't want to be there you want to be confident and competent you want to be the person who knows what you're doing and when you're competent and confident then the loss of confidence results in missed opportunities it results in not maximizing on opportunities that present themselves because you know you're kind of in the state of being really cautious you're risking too little you're you start hesitating you start second guessing yourself and here's what happens and I've been through all of this where you know typically you see this maybe micro pullback and you're jumping in right here the stock goes from $3 to like $6 dollar goes up 100% in 15 minutes but you hesitate because ah I don't want to take another loss I'm a little nervous I want to wait for it to prove itself then finally it sets up a good pattern up here you jump in and you overcompensate buying more at the top because you're frustrated you hesitated and then just luck of the draw it does a jack knife and you end up red and it's like man if I'd been the same old me I would have been in this right here I might have added smaller size here but I would have been green on this trade and I just managed to turn a 100% Gainer a stock that typically is my go-to into a loser and of course then that creates its own emotions so hesitating second guessing yourself loss in potential profit because now you've got this opportunity cost where you you're perhaps scal down rightfully so because you've made some big mistakes so now you're not capitalizing 100% on the opportunities of presenting themselves you're not at 100% in terms of mental capacity you're not at the top of your game you don't want to go into the Super Bowl when you're not at the top of the game now every day when we come into trade this is a performance sport you will you you eat what you catch you have to perform and if you're not able to perform what's going to happen you're going to take these unnecessary losses right so the loss of confidence is a major problem trading is really all about competence and confidence when I see Traders out there and you know I know some Traders out there who make far more than me I think my God how are they feeling confident to buy 200,000 shares of a stock 300,000 shares 500,000 shares how do they do it it's confidence that's what it is they've got confidence and and of course look they've got a maybe a higher risk tolerance than I do and that's okay too but they've got incredible confidence and it's important to have that so you've got to do everything possible to keep yourself at 100% so every day you come in you're ready to be at the Super Bowl you're ready to be you know trading at your best so keeping your mental state at 100% when you're always ready to perform is important that means for me never losing more in one day than I can recover in one day now that's in a perfect world but a couple times a year things happen I take too much risk I get overconfident and boom big loss now if we look at my trades um just from this week and and we are going to go over my trades from today just as an example I I haven't forgotten about that but if we looked at my trades just from this week um you'll see that this week has been a really good week for me in total in total it's been a great week yesterday was not a good day the day before yesterday I was up $100,000 so I really can't complain but I have seen traders who have turned a great day like this into a day where they give it all back I've seen it happen the traders who trade at my level I've seen them make 100,000 in one day and lose 150,000 the next day so for me I never want to lose more in one day than I can recover in one day and after a red day what do I have to do I have to immediately Implement guard rails to reduce the risk of back-to-back red days so actually if we look at my trading here over the last 90 days you will see that I have no back-to-back red days right look at this I have yes do I have red days certainly I have periodic red days and then the next day each day following a red day I'm being very careful now when I was showing you that 28,000 draw down from the beginning of the year that was one of the first big draw Downs I'd had in months and I don't I don't know what I was thinking I I you know I this is actually very common you'll say I don't know what I was thinking that's because your logical brain was gone and it was emotional hijack that was in charge it was my emotions that would taken the wheel and I was a backseat to all of it I came back the next day and was like what have you just done you're down $28,000 but that was when I had to right away accept what I had done acceptance and now Implement these guard rails to prevent multi-day spiraling but prevent it from getting any worse so acceptance look if you've already had 10 red days in a row you've had 10 red months in a row the best time to accept would have been 10 months ago when that first started whatever the next best time is right now so you can still accept where you're at right now and commit yourself right now to not digging the hole any deeper so after a red day or if it's for you maybe it's a red month or whatever it is immediately as soon as you become aware Implement these guard rails to reduce the risk of back-to-back red days and I'm going to share with you what those guard rails are be quick to size down when it gets cold and learn to develop a keen awareness of caution Flags in the market so for me we have to do everything possible to avoid this backtack spiral where the losses get bigger and bigger and bigger we need to break the cycle the moment we have the awareness and the insight into our state of mind now this is important because sometimes people don't have insight into their condition right when you're in the midst of emotional hijack you don't always have the insight to know that you're in that state which is very it's very dangerous because you you deceive yourself into thinking you're good but you are not good not even close and so the more you trade the more experience you gain the better you'll get at being able to recognize and be honest with yourself about whether or not you're really good or if you've started to get close to that 0 and0 return where you have to step back and walk away so we have to break this cycle how do we break this cycle and where do we break it number one stop the bleeding you've got to stop trading that's the first thing I mean it you have to stop the bleeding sometimes I think about this as like you know if I was in a rowboat and all of a sudden it's leaking what's your first order of business is it padd as fast as you can to start to recover to get back to Shore or is it to fill the hole fill the crack now look I mean if you're really close to shore maybe you can start paddling like crazy but realistically let's say your way out there your first order of business is to stop the leaking stop bringing on the water stop bleeding stop the losses which means stop trading now the next thing is get help and I think telling a friend I'm spiraling or even right in the chat room in our community be like guys I'm having a bad day I'm Revenge trading I'm spiraling I'm on emotional hijack is important because you've got a whole support you got a network here of people who will Who will tell you exactly what to do turn off the computer right now walk away go outside take a deep breath go for a run leave because we've all been through it before and we don't want to see you make the mistakes that we know happen when you TR continue to trade when you're spiraling so we all want you to walk away as quick as possible so whether you're getting help from someone in the chat room or you're calling a friend or whatever it is you get help number three assess the damage and when we're assessing the damage that's when we get perspective we ask ourselves what's our track record how bad is this really can we can we kind of change our perspective on this so the glass is still half full even in spite of this loss and just be honest with how bad is the situation now maybe the Situation's really bad I've seen people take some pretty catastrophic losses and recover from them and I've seen people take relatively small losses and they get shaken and they can't get reentered and they just spiral out of control which is kind of remarkable you've maybe if you've tuned in to my recaps for number of years you've seen me take some pretty big losses it's happened look I mean I'm I trade with big money and at times I've taken some big losses but I've been able to recover so these are sort of the three steps stop the bleed and get help and assess the damage now when it comes to stop the bleeding you've got to stop trading of course and one of the things that um that's always important to me is is to try to like I said not lose more in one day than I can make in one day which means my daily Max loss is the same as my daily goal my daily goal is $5,000 my daily Max loss is 5,000 now over the last 30 days if I look to the last 30 days right now my 30-day average is actually um let's see last 30 days right now I've been averaging 21,000 a day so I've allowed myself to trade with a little bit more risk in these last 30 days because and I know that the the red days will be bigger but the green days are bigger as well because I'm in a hot market so while I have kind of my rough rule of thumb of daily Max loss and daily goal it it is relative to the market you're in if you're in a hotter Market the numbers can be bigger if you're in a colder Market you got to tighten things up a little bit but a quick recovery is really important so how do we position ourselves for a quick recovery this by the way was my peak in um I guess it was like early March and then that was my draw down right there and then this was the recovery and it took some time to make back all that loss right but and you'll see as I was making it back there were some additional draw Downs made it back another draw down made it back another draw down this is trading you're going to have losses you're going to have red days net at the end of the month the year you want to be making more than you're losing but draw Downs will happen so here's what I do this is my recovery plan and I would encourage you to implement this in your own trading if you've gone through this type of draw down so number one creating the game plan and breaking the cycle is it is huge in terms of just you've stopped the bleeding you've accepted the loss and now you're sort of repositioning to these are the steps I'm going to take to recover so number one sizing down immediately this is really tough one for a lot of traders to accept including myself because if you size down suddenly that hope of you know all I need to make is a dollar a share with 25,000 shares well that's gone because you're not trading with 25,000 shares when you're sizing down you're trading with whatever is maybe a quarter of your regular size so if you Max at 10K shares you're trading it with 2500 and I know that it's not fun and it's a lot of Traders are resistant to trading with small size but here's the reason you do it after you've had a big loss there's two things that may be happening number one possibly the Market's still hot and you just made a mistake okay that could be just totally you but what's more likely is it's a combination of the market has started to cool off and you weren't quick enough to recognize it which means you come back for trade two trade three Trade four if the market has in fact cooled off you're probably not going to have big Winners so now it actually does make more sense to size down a little bit and one of the things that's so so frustrating is that for me most of my hot streaks end with a big loss so I'll be on a really nice hot streak doing awesome and then boom a big loss and that big loss kind of marks the end of the hot streak because through this stretch I may have had trades that were pretty risky and I was pushing my luck on it but the market was so hot I just kept making money it it was like it was a more forgiving Market even if you weren't being as disciplined as you could have been and then it catches up to you and boom it caught up to me right here that's the big loss and then it's like okay while it's possible that I could rally back with big size on the next day that's the upside benefit the downside would be a second big day in a row and I cannot handle that risk so if I can't handle that risk I can't take big size so instead I'm sized down which means day two best case scenario small Green Day worst case scenario it's a small red day but both of those are acceptable a second red day as long as it's smaller than the first is acceptable CU look I mean it's going to happen you're going to have two red days in a row it could be just bad a bad Market it's bad luck but it could happen but at least on day two it was with small share size so the total loss was not as significant was not as painful so now you go from down 10,000 to down 11,000 or 12,000 it's negligible you haven't doubled your loss right you made it a little bigger not too bad and then coming in into uh you know day three day four uh you expect over the next 5 days probably four out of them will be green so now you start making slow progress right all right so the way I approach this is on day two day two guard rails number one we size down that's the first thing you've got to do you've got to size down number two you focus on a quality stocks that's going back to the basics of what your metrics tell you you do the best wherever you make the most money that's what you're focusing on for day two it's just like the the setups that you have 99% conviction in and if there's nothing that you have that conviction in you don't take trades on day two because you don't want to dig the whole Deeper by focusing on a quality setups what's going to improve your accuracy right now I've got this book here which I reference all the time this is um thinking in bets by Annie Duke making smarter decisions when you don't have all the facts that sounds like the type of information we'd like to learn about it's a national bestseller she's a professional poker player and so she's talking about making um educated bets of course when it comes to Poker and she makes money doing it so for her it's not really gambling because she's got an edge when it comes to trading uh one of the things that she said in this book is she mentioned her brother was teaching her how to play poker and he said these are the hands that you will play as a beginner and she said well I don't understand I see other people playing different sets of hands why are they allowed to play other sets and and he said they've been doing this for a long time they've earned that right you are guard rails on bumper rails you're trading the ones that have the highest probability of working and that's what you have to do on day two after loss you've got to trade the setups that have the highest probability of working because you need the wins you need to restore your confidence right you need the win and so you take those trades you catch a couple wins and boom you're feeling better and I'll tell you it's in this is I I've met so many traders who are so resistant into putting themselves into Trader rehab and I actually I did an interview with one of these um Traders recently he's got um he's doing really well he's got 100K uh badge at Warrior trading $100,000 verified profitability he's putting in his paperwork for a 500K badge and so he's doing really well he's having a great year but he had a big draw down in earlier earlier part of the year and I said you've got to rain it in because right now you're just digging the hole deeper and deeper and deeper and he really didn't want do that he just wanted to kind of keep pushing through and like on the one hand I get it cuz I've totally been there and sometimes we have to learn these lessons the hard way we got to learn through the our own experience but on the other hand I just I wanted him to like re it in so he wouldn't give back 30% of his profit on the year before things turn around because I I don't think it was totally his fault that he was struggling you know was the market there was a number of other factors but the emotions were making it worse rather than just taking those quick little small little base hits you start getting this mentality if I need to make x amount today and I need 10 days making that amount to get back to whole and you're doing that that math you're thinking about all that and next thing you know the the hole is getting deeper and deeper and deeper so you focus on a quality setups accuracy improves confidence improves profits will follow right profits are a byproduct of you following your strategy every single day it's a byproduct if you focus on the profit you focus on the number you're pointing yourself in the wrong direction that's not your North Star your North Star is focusing on process now I will actually put a link for you guys um I'll put in the in the description of this episode it's a link where you can download my trading plan so if you want to download my trading plan and you want to start implementing it in your own trading today in a simulator please by all means check that out I'll put that link in the top of the description and I'll have another one that I'll add um uh another PDF that I'll add to that download you can download a couple PDFs so you follow the plan profits are a byproduct of that plan and consistency and confidence return the most important thing here is to avoid having a second or third loss when you're in this vulnerable position this is where you've got to be on the defense and I know it's not fun to be on the defense it's not fun to bat and down the hatches but this is what you have to do so sometimes I think about I don't know maybe like a a landscaper or something they're down in Florida you know they're mowing lawns all this stuff and all of a sudden a hurricane is coming through and they want to be working they want to be making money they got their crew to pay right they've got the equipment they've got lease payments all this stuff but there's a big hurricane what are you going to do you going to go out and mow the lawn in the hurricane like an idiot come on you batten down the hatches you hunger down you weather it out you weather through the storm and are you kind of taking losses by doing that in a way as as a lawnmower landscaper I guess so you know but at the end of the day it's the right decision so being a Trader it's being self-employed you got to roll with the flow you got to go with the flow you got to roll with the punches because that's the way it is you've got ups and you've got downs and when you're in a down you can't force it you can't muscle your way back to the top you only get back to the top following the rules so now the question is when do I size back up I size back up once I've recovered half of my draw down and I'm telling you again I I've known so many traders who are so reluctant to go into Trader rehab and if you're reluctant to check yourself into Trader rehab I'm telling you most likely it's the fear of missing out that is creating that resistance you're saying I don't want to miss out I don't what if Tomorrow there's a big move and I miss it and I get that I hear that but what you don't want to have happen is to have five more red days in a row and what I am telling you is if you put yourself into Trader rehab if you accept current reality and you start today following this plan which you can download which pinned at the top of the comments and in the description you start following following that plan 5 days from now you're going to feel like a different person 5 days from now you're going to feel like wow I've got Clarity I've Got Confidence once you separate yourself from all the emotions of the draw down and you start having even just a little incremental progress that's when you feel like wow it doesn't matter that I'm technically still down $75,000 I'm making2 200 a day and if I can make 200 a day for the rest of this year for the rest of next year for the rest of the year after it's smooth sailing for me and I'm good and that's what I kept telling myself all the profit to recover my losses is in the market but there's a hitch it'll only come if I have the discipline to follow the rules of my strategy can you bring the discipline I'm sharing my strategy with you but you got to bring the discipline all right now I'll also put a link um in this episode for my free day trading course I have a free course that I teach it's about 90 minutes long and it really goes into the specifics of stock selection the type of stocks I trade and um I'll also share with you the link where uh you could do a twoe trial at Warrior trading if you want to watch over my shoulder while I'm trading so this is the way I approach it I go I have a nice hot streak I go into a draw down and here this is the spot we really get focused guard rails are on so that means Max size is one qu of full size Max size is one quarter full size focusing on base hits focusing on building cushion so building cushion means each day when I'm trading I'm starting with small size I'm trying to make 20 cents a share with small size build a little bit of a cushion and then once I have the cushion I'll size up a little bit more up to my quarter size Max position I have to be very careful because it's important that I build some consistency I put together some green days so I can't take a lot of risk so I start putting together a couple green days maybe a little red day another Green Day another small red day another Green Day and once I've had usually about five days once I've had about 5 days between me and the loss by that point usually I've made back a little bit of the loss and I'm feeling emotionally a thousand times better once I'm truly feeling emotionally better and I've made back close to half of the loss then I start to size back up for the next leg higher and that's when I move into this next range and you know what it's only inevitable that a matter of time boom I'm going to have another red day like I just had yesterday it's going to happen have another red day it's disappointing but it'll happen now in order to make a smooth recovery stock selection is number one you have to be super dialed in on the best type of stocks to trade so you know if if you haven't if you're not familiar with my criteria for stock selection I have five very specific pillars of stock selection and let me see if I can grab I think I have a um here it is so these are the five pillars of stock selection all right number one is looking for stocks for me that have five times higher volume today than his average this means the stock is doing something exceptional higher volume than average why typically because there's news stock already has to be up 10% and it should be priced ideally between 2 and 20 or 3 and2 and a float of less than 5 million shares now this was a slightly modified um Five Pillars for the current market that we're in typically I would I would say float of less than 20 million and price between two and 20 so this is just slightly zoomed in to what was working better in just the last few weeks but generally speaking every trade I'm going to take when I'm in my recovery has to be trades that meet a quality setup so let's talk about the positive feedback loop positive feedback loop begins with trading high quality stocks you trade the right stocks even if it's not a perfect setup more important than the setup is the stock now I'll tell you something in my trading career I tried to create this uh scanner to search for bull Flags because I love bull flags and so I thought what is a bull flag look like a candle that squeezes up here maybe two or three candles so the stock over the last 10 minutes should be up x% so I was like up you know 10% 15% minimum in you know 15 minutes and then I was like and it has to be you know hanging out here at the top of the range CU I what I wanted to find was this pattern right here and I'd be buying right here first candle to make a new high so I was looking for a stock that was sort of like right here which meant it was up you know 15% in the last 10 minutes it had you know one red candle one red candle and it was above its 9 EMA 90 Ma so I was like creating all these technical characteristics and the scanner started giving me bull flags and I was like nice awesome I started trading them and I started losing money what is going on and I realized more important than pattern is the stock when you trade a perfect pattern but it's not a stock that nobody cares about it's not going to work you trade a perfect pattern on Tesla high frequency trading algorithms will take your money thank you very much money's gone you got to trade the right stocks so stock selection is number one understanding the five pillars of stock selection how they vary from Market to Market is critical so by focusing on high quality stocks what happens accuracy improves accuracy improves profit loss ratio follows why is that because more winning trades means you're avoiding what used to be losers and some of those losses likely used to be big because you weren't trading good quality setups is it possible you could take a big loss on an a quality setup it certainly is but it doesn't happen nearly as often as taking big losses when you're trading low quality stocks so accuracy improves profit loss ratio improves what does that improve your consistency more Green Day more green weeks now consistency is your track record that creates self-confidence increase confidence means increasing the number of Trades increasing the share size and making more money that is the positive feedback loop that I want to see you get on that's the positive feedback loop that I'm on in total in general but even I get knocked off it from time to time as I did yesterday so now let's talk talk about today my recovery all right so yesterday big red day as we already looked at we had the p&l here so yesterday was down $111,000 was not pleased with that not a fun day today I am up $ 4,632 128 this is a good recovery day I'm green on four out of the five stocks I traded I never went red today I started by building a cushion so what is that look like I sat down today and I said first goal is being up $1,000 on the day focusing on a quality setups if I can get myself up a th000 I'm comfortable taking a little bit more risk and seeing if I can hit my daily goal of $5,000 I I came very close to it not quite but very close so the first stock I traded today aen I'm up $1,830 on it as you can see right here let's look at aen why did I trade this stock aen is up right now 178% this morning it hit a high of 250% wow that is an incredible move where was I trading it take a guess right in here look at this pop the pop the pullback and the squeeze up to 240 that was a nice pattern on high volume on a stock that was obvious because in that moment it was our number one leading percentage gainer in the entire Market it was 100% obvious the next stock I traded SPL SP went up over 100% today let's see let me type this in here it's currently up uh 39% it's pulled back a little bit off the highs and I'm telling you this is also a really good example where today did we have strength yes but it wasn't as hot yesterday started to cool off today was also a little cooler a lot of the stocks moving today were sympathy to the move the 260% move on aen they were lower price stocks so SP I got a couple nice trades on this and my trades on this were pre-market I bought it in this area right here not really using the five minute chart as much as the one minute so I'll pull up the one minute for you so um SP trading the one minute chart the stock had news pops up drops down pops up drops down the actually um my best trade on it was right here was right in here for the squeeze through the high of day that was my best trade on SPL had a couple trades in this are was smaller size it was going above and below vwap which is the technical indicator didn't love it uh but but was able to get in the zone where I was like okay I think it's going to work float 4.8 million shares super high relative volume relative volume ratio today on this one is 5.3 um relative volume ratio on aen is 11,000 holy smokes and then we had a couple other stocks I traded tcbp muln asst so today was a day where I came in looking for base hits and I locked up base hits would I have loved to have made back everything I lost yesterday sure that would have been nice if the market had given me those opportunities it's possible it could have happened but I had to accept that that's not the goal for today the goal for today was to focus on a quality setups build up my my cushion and taking base hits that was what was critical and I achieved that so for you if you've gone through an extended draw down your number one Focus right now has to be stop the bleeding and put yourself into a trading plan where you can begin your recovery slow and steady it's not going to happen overnight but if you could start focusing on hitting base hits locking up you know small green days 5 days from now 10 days from now you're going to feel like a different person you're going to be like you're going to have so much confidence you're going to feel like you've got your mojo back you're just going to feel so much better and that's why I just think it's so important to put yourself into that Trader rehab program because the downside of not doing it is well what if there's a big move and I miss it okay that would be disappointing you're in Trader rehab you missed the move but the upside benefit that's your only downside your upside is that you will be able to reset emotionally and get back to trading from a place of confidence and consistency and that is worth so much more than one trade that you might miss so you miss one trade who cares there's always going to be another trade around the corner so one of the things I always tell you guys is look the Market's going to be here for you this is your time right now to build your experience and your own sense of educated intuition so you can get better at learning when to ease on the throttle when to get aggressive and when to cool off if you found this episode interesting I hope you hit the thumbs up I hope you subscribe to the channel and I hope you check out either my free class or you check out the two-e trial I think you would love either of them and if you want to download my trading plan that link is Pinn at the top of the comments and in the description as well thanks again for tuning in and I'll remind you as always trading is risky my results aren't typical so please take it slow manage your risk the market will be here for you I'll see you for the next episode real soon