Rob Hoffman is a frequent Traders Expo trading champion, and he most recently became the first American to ever win the International Salon du Trading Competition in Paris, France. Mr. Hoffman educates thousands of individual and institutional traders and investors from around the world on a daily basis. He has been an affiliate member of the Market Technicians Association since 1998. Mr. Hoffman offers his students a unique live trading experience where students are able to look over his shoulder, ask questions, and watch a professional trader as he trades his live account right on the screen in front of them.
Losses happen to everyone, says Rob Hoffman, but by evaluating the trade plan and adjusting stops, traders can rebuild confidence in the most effective way: by booking a winning trade.
I'm talking with Rob Hoffman today. Rob, all of us have experienced a loss, whether it's a trading loss or something in our personal lives. It can kind of knock us for a loop.
How, in your trading experience, have you been able to recover from a loss?
Great question Karen. You know, one thing that I found is when we have losses, one of the most important things to do is first of all, assess the trading plan. Is it a good, solid trading plan?
Is this a situation where we have numerous losses where we are taking ten trades, and nine out of ten of them are losses? Perhaps the plan itself is flawed.
Maybe we have to review the trading set-ups themselves. Are they the right types of set-ups for the current market environment?
Then what I find is really after talking to thousands of traders across the world, human nature is fear and greed and fear of taking another loss. So, one thing that has personally helped myself and students is to actually trail the profits up a little bit tighter than we normally would from a day-to-day perspective.
What do I mean by that? Well, one of the most important things I find for traders is to start having winning trades again. So, the worst possible thing in that situation would be to take a winning trade and turn it into a loser.
I've had that experience myself, and probably anyone that's ever traded before has turned a winner into a loser if they've been trading for more than a few days.
So, Rob, how does a trader go about rebuilding confidence after suffering a loss like that?
One of the easiest tools that I found is after reviewing the trading plan and making sure that the trading plan itself is solid, sometimes just tightening the trailing stops, so tightening the profit targets, making sure that we're finding a series of wins.
It's a real confidence booster after a loss-big or small-to go on and have a series of wins. It doesn't have to be a big win to increase confidence. It basically can be a very small win.
So, taking a situation where, for example, the profit is 20 ticks on a trade, maybe tighten that up to four or five ticks perhaps; whatever the number is.
Taking a series of small wins, small gains, and realizing, "Hey, my set-ups are sound. I can do this. I can be a successful trader." And by doing that in smaller doses, having several smaller wins can really get a person jumpstarted and back on track.
So, I would encourage people if they've had a loss-big or small-to look at their trading plan first. Make sure the trading plan itself is solid, and they can always consult their broker or registered financial representative to do that.
From there, if they find themselves in a trade where they're profitable, rather than going for the big win to make back their loss or make the big kill-or even sticking to their normal profit targets-maybe take a series of small gains to rebuild that confidence.
So, you use the baseball analogy of after you've struck out, instead of hitting for a home run, just go for the single, the double, and then slowly but surely increase.
Karen, just like in baseball, look how those singles and doubles add up for the team as a whole.