Randy Howell breaks losing trades into three categories: method mistakes, psychological mistakes, or bad probability. He recommends reviewing each loss to identify which type it was, then adjusting your plan, mindset, or acceptance accordingly. Live trading teaches discipline in ways paper trading cannot because real money triggers the fear that forces growth.
Well, as traders it's very easy to take our winners. There's no problem there. But how do we deal with losing trades and still have confidence to go on and trade again? Our guest today is Randy Howell to talk about that. So Randy, how do you lose? Well, as a trader.
It really falls.
Down to recognizing that your plan works and that probability is on your side. And if you've developed the discipline, when you do lose, there's three major questions. Is this a method mistake, is it a psychological mistake? Or it's just simply I'm on the wrong side of probability. In either case, if it's a method mistake, you work your plan, you either go back to your plan or you alter plan so that it reflects the reality that you're working in the markets. If it's a psychological mistake, that's the place where you have to work. The mistake is what's telling you that you need to work. And the brain only learns from mistakes. So losing is a way that you're just short circuiting and saying, okay, I have to learn here. And what attitude do you bring to learning? That's the key. If you bring fear to learning, you've got problems.
Most traders start out paver trading with a fake account. It's not real money. And they find they can do really well because they don't have that fear of losing money. The moment they flip the switch and it's the real account, something changes. Is there a way to keep that same mentality that I had in the paper trading account and when I move over to the real money, they're two.
Different animals is risk is not involved in paper trading. And the key is the moment risk is there, uncertainty is there and you are going to lose in trading, you are going to win in trading and it's the discipline that you bring about losing, losing. If you're, if you're doing your plan, if you do your review and there's nothing you would change, that one's just let go. And again the others, if it's a method mistake, you correct. If it's a psychological mistake, you correct. But without the mistake, you didn't know.
So I think one of the biggest questions is that you mentioned you let it go. The best traders that I've talked to do just that. They forget about that losing trade immediately and they're moving on to the next one. But how do you know that? It's not something that I'm reading the market just incorrectly that day versus I need to change my strategy. So basically how do you know whether it's a probability problem or a method.
Problem, well, that's your review. When you go back to review, you're in a different state of mind than when you were when you're trading. You know, in trading there is a highly disciplined, highly impartial, very courageous mindset that's required. You know, when you're, when you're doing review, it's more of a speculation you're exploring. It's a totally different kind of thought process and you're, you're looking to do that and whether or not you can ever tell. Most traders know if they've made a methodology mistake. They know that if their psychology got out of hand they will be able to see the cue and they go back through rituals and their psychology to be able to reform their psychology so that their mindset is very, very squared with trading.
Randy, thanks for your time today.
You're welcome.
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