Day Trading: Sometimes You Take Good Setups and They Fail

By David S Adams

I had an interesting session day trading today, as I took two very attractive setups and they turned out to be disastrous. Besides being tough on a trader's ego, the results of my trades today were a disheartening. On the other hand, it reinforced something I have talked about at length with new traders and in some past articles. We often forget that trading is a simple function of an indeterminate probability.

Regardless of the quality of this set up, all trades have a possibility of failure. Of course, some trades have a higher probability of failure than others: what every trader has to accept that even the best setups may not always work. That's a bitter pill to swallow, and today I got a chance first hand to experience the harsh reality that the law of probability imposes on all of us.

I've had many losing days in my 22 year career: some of those bad days were the results of for decisions on my part, or hasty decisions on my part. Other days, though, were simply days when the probability did not work in my favor. And in a certain way, it's reassuring to know that this reality occurs from time to time to experienced traders. It reinforces the theoretical framework I work with when trading in the futures market. Needless to say, I don't want to confirm that losing money is a pleasant experience. I am a highly competitive trader and loathe losing money, but days when good trades go bad reinforce the framework of ideas I use to anchor my beliefs about the market.

The most important factor to remember is not to let losing trades affect your trading style or your emotional/psychological outlook on your trading career. Good traders lose money just like less skilled traders lose money. But there is a difference between how a good trader handles the emotional aspect of losing money versus the emotional consequences losing money has on a novice trader. I am a confident trader, and believe the setups I took today were quality setups and probably would take the same setups if they were presented again tomorrow. What I am trying to say is fairly simple; don't let losing trades affect your trading style. I know that good trades will come around during the trading session and my job is to identify those trades and trade them effectively. I don't need to panic, and I don't need to do anything different with my trading methodology. I simply continue to trade in the fashion that has been successful for me for many years and wait for the profitable results to materialize. After all, high probability trades will generally result in satisfactory results.

On the other hand, there is a tendency for less experienced traders to initiate measures to “catch up” the money they have lost on bad trades. This is a recipe for disaster and results in the early retirement of many traders. Today, for example, I did not allow to bad trades to change my trading style, and a very profitable trade came along later in the day that put me back in the black. It's important to remain patient on days when you have lost money because there is no worse feeling than looking at your trading account and seeing a negative number for your trading results on a given day. As I have mentioned, losing trades can often beget a series of poorly thought out trades that enhance a traders losses for that day. If at any time you feel you need to increase your risk tolerance to catch up in your trading account, the best thing you can do is turn your computer off and head for the golf course. Of course, the golf course can be just as disconcerting as your trading, but it will cost you a lot less money.

The point I am trying to make is a simple one, and it was driven home today in my personal trading. Regardless of the outcome of the trades in one of your daily trading sessions, it's important to maintain your original style of trading and not take unusual measures to put yourself into the winning column. Maintaining your trading style, regardless of any prior trades, is essential to succeed. In a backwards way, how you handle losses will, to a certain extent, have a direct bearing upon your personal trading success.

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About The Author
I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit.

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