No trader is perfect, and I’m no exception.
After an incredibly disappointing call trade on Shopify Inc. (NYSE: SHOP), where I took a brutal 65% loss, I’m re-evaluating a few things about my trading.
In other words, I’m going back to the drawing board…
Every trader will face moments such as this one. A bad trade forces you to take a long hard look at your strategy and fix what’s not working.
The question is this … do you let your losing trades shatter your confidence, or use them as motivators to avoid similar losses in the future?
Keep reading and I’ll show you how I’m adjusting after taking a big loss…
Cutting Losses Immediately
Tim Sykes’ #1 rule, to cut losses immediately, has been a pillar of my trading strategy for over a decade.
I’m usually very disciplined about this. I’d rather play it safe and miss the eventual move in my direction than hold onto a red position (that could potentially drop further).
But I didn’t keep my SHOP trade on a short enough leash…
I bought the calls on Monday and I should’ve identified SHOP’s weak close as a signal to reduce or cut my position.
But instead, I broke my rules and held the calls into Tuesday, which turned out to be a big mistake…
SHOP dropped more than 6% intraday and I was forced to sell my calls for a 65% loss.
In hindsight, I probably should’ve listened to my own advice about being extra cautious with any and all long positions in this market.
But another factor potentially influenced my trading on SHOP…
Keeping Emotions in Check
This wasn’t my first SHOP trade in May…
Earlier this month, I wrote about two big missed trading opportunities, SHOP being one of them.
Going into Monday’s trade, that missed opportunity from a few weeks ago was still fresh in my mind.
I saw so many other traders profiting on SHOP, knew I had missed the boat the first time, and wanted to get in on the action…
But the truth is, I broke a few of my rules here:
- Treating every trade equally. (I shouldn’t have allowed the earlier SHOP trade to influence this one at all).
- Chasing. (I arguably chased this trade a bit as SHOP was already up considerably when I entered calls the second time).
- Attempting to ‘revenge trade’ after missing it the first time. I should’ve moved onto another chart entirely instead of trying to make up for my missed play.
Ultimately, all of these mistakes fall under one category … keeping emotions in check.
It’s absolutely critical to approach every setup as a clean slate and I didn’t do that this time.
It was difficult to not have my last SHOP trade lingering in my mind during this one.
So, don’t make the same errors I did…
If you’re struggling to trade the same stock continually … stop trying to trade it! (I’m done with SHOP for a while).
And if you feel your pesky human emotions creeping into your trading mindset … do everything you can to readjust your psyche.
Start trading like a robot.
I’m cursed when it comes to trading SHOP and I won’t be trying to do so again anytime soon.
But I’m still going over the trades to identify my weaknesses and improve upon them in the future.
This is what I want you to do every time you miss a trade or take a loss.
Use these moments as learning opportunities, just like I am.