One of the themes we're highlighting this month at Topstep is discipline. And sometimes being disciplined means knowing when to take your lumps and get out of a trade that just isn't working. In today's "Topstep Moment of the Week," Dan Hodgman joins Anthony Crudele on the Trading Futures YouTube show to breakdown a pair of failed breakout trades made by funded trader Cori F. from Illinois. Remember, great trades are not always profitable, they are simply shrewd and disciplined decisions made using the available information. We applaud Cori for sticking to her strategy, and living to trade another day.
In this video, Topstep Performance Coach Dan Hodgman offers 4 key pieces of wisdom for traders looking to better control their risk:
You will have losses, keep them small
No trader is perfect. From the smallest retail grinder to Paul Tudor Jones, everybody has taken a loss in the markets. In trading, there are few universal truths, but Dan touches on one in his conversation with Crudele: the smaller your losses are, the better.
Emotion is often the enemy of rational thought. Don't hold losers out of a misguided sense of faith in the trade. The market is always right. Keep your stop losses tight, and make sure your failed trades are small relative to your winners.
Don't judge trades solely from the P&L outcome
You know the old saying that you shouldn't judge a book by its cover? The same principle applies to trading. Your P&L does not tell the whole story of any particular trade. A big winner might be a terrible, lottery-ticket of an entry, while a small loser might demonstrate a prudent decision based on new market information.
You should evaluate your trading strategies from a macro level based on a large volume of trades. Of course, over a longer time period, P&L becomes an incredibly important success metric. This is where it is important to be adaptable, but it's not wise to make judgments based on a single failed trade.
A losing day within your plan is still a good day
Not only will you have losing trades, but you will also have losing days. It is important that you learn to accept this inevitability and move on with a clear mind. Study and grow by reviewing your bad days, but don't dwell on them. Nobody wants to hang around with the crabby trader at the end of the bar who only focuses on the bad beats.
Take a "zen" attitude about the whole process. You can't control the markets each day, but you can control the way you react.
Hold yourself accountable
As Dan explains in this segment, discipline only comes when we hold ourselves accountable. Bad stuff happens. Unlucky stuff happens. We know—but remember, everyone else is trading the same markets. At the end of the day, the buck stops with you.
Blaming others, or complaining about circumstances is never a good look. If you want to be successful in this industry you must accept your own agency—even relish in it. If at first you don't succeed, try, try again while incorporating the lessons you learn along the way. Perseverance, discipline and accountability will take you a long way.
Have your own Topstep moment you would like to share? Let us know in the comments.