On Monday October 19, 1987, the Dow Jones Industrial Average fell by more than 500 points. As the stock markets in Europe, Asia, and the United States began to crash, some traders, like Paul Tudor Jones, were able to profit from the fall out; others, like Richard Dennis, lost everything.
Dennis, who was a world-renowned trader throughout the 80’s and 90’s, blew through $10 million in less than 24 hours; by the end of 1988, he had lost a total of $50 million on the stock market. With a business to run and very little money to spend, Dennis could have easily given up on his career as a commodities trader.
But the mastermind behind Turtle Trading was ready to recover from his losses. In the book Market Wizards: Interviews with Top Traders, Dennis shared his approach to dealing with a series of bad trades.
“There is another point that I think is as important: you should expect the unexpected in this business; expect the extreme,” Dennis explained. “Don’t think in terms of boundaries that limit what the market might do. If there is any lesson I have learned in the nearly twenty years that I’ve been in this business, it is that the unexpected and the impossible happen every now and then.”
Like many of our readers, you may be searching for ways to recover from the unexpected. The practices that helped traders like Ray Dalio, Jesse Livermore, and Richard Dennis bounce back from failure can set you up for success in the 21st Century. Here are three tips for overcoming a series of losses, based on trading psychology, scientific research, and the experiences of the world’s greatest traders!
# 1Become A More Resilient Trader
When your decisions lead to a series of losses, you may start to doubt your knowledge, skills, and abilities as a trader. But the secret to overcoming a financial setback is your mental stamina, not your knowledge base.
According to Dr. Carol Dweck, a psychology professor at Stanford University, the most resilient students, athletes, and entrepreneurs have a growth mindset. When they face new challenges, they choose to work harder, develop new skills, and improve their current abilities; when they struggle with failure, they see their setbacks as an opportunity to grow stronger.
There are so many ways that you can cultivate a growth mindset, but one of the best tools at your disposal is available on this website! In our masterclass, we included a complete trading psychology course with tons of video lessons and helpful workbooks: Tradeciety’s Masterclass
#2 Change The Way That You Approach Your Trades
Of course, a winning mindset can only get you so far; when you suffer from a series of financial losses, you may also need to change your trading strategy.
According to Investopedia, a trading strategy is a method of buying and selling in markets that is based on predefined rules used to make trading decisions. In other words, a trading strategy is a process that sets you up for potential financial success by trying to achieve a positive expectancy.
Thus, the next step is that you sit down and become very clear about your trading strategy. 4 steps that will help you get there are:
- Print screenshots of your 10 best and your 10 worst trades
- Identify things your best and worst trades have in common
- Create a checklist based on your findings from the 10 best trades
- When you take a new trade, make sure it fits your checklist criteria
#3 Get Out Of Your Own Way
When your emotions take over, you may not have the ability to respond to losses with the same strength and resilience that you had before. Sometimes, the best thing that you can do to recover is to get rid of your emotional attachment to trading.
No one knew this better than Victor Sperandeo, the President and CEO of Alpha Financial Technologies, LLC. Like Paul Tudor Jones, Sperandeo made millions of dollars during the stock market crash of 1987; he later said, “The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.”
If you feel like your emotions are getting in the way of your future success, you should find a way to channel that energy into something positive. Short periods of repetitive, physical activity — like walking, jogging, or yoga — can help you take your mind off of your past performance, concentrate on your next task, and sharpen your focus. When you get back to your desk, you can work on the next series of trades without carrying the emotional baggage from the old ones.