The BEST Way to Handle (and overcome) a Trading SLUMP

Summary

In this insightful lecture, Jared Wesley addresses the inevitable challenge of trading slumps, emphasizing the importance of understanding statistical probabilities and maintaining a disciplined mindset. He shares personal experiences to illustrate how past losses can impact current trading decisions and stresses the value of sticking to a well-thought-out plan. Wesley also highlights the significance of reviewing trades, managing risk, and maintaining realistic expectations to navigate through slumps and winning streaks effectively.

Takeaways

• 📉 Understanding and accepting trading slumps is crucial as they are an inevitable part of trading.
• 💡 It's important to differentiate between investing and trading, with the former being a long-term strategy.
• 📈 Historical data suggests that markets tend to increase over time, making long-term investments generally profitable.
• 📝 Keeping a trade tracking spreadsheet and reviewing trades is essential for understanding and improving trading performance.
• 🧠 Psychological factors, such as fear and previous losses, can significantly impact decision-making during a trading slump.
• 🚫 Overreacting to a losing streak can lead to poor decisions and should be avoided.
• 🎯 Sticking to a well-thought-out trading plan, even during a slump, is key to long-term success.
• 📊 Understanding statistical probabilities and win-loss ratios can help traders manage expectations and reactions to market fluctuations.
• 🤔 Reflecting on past experiences and learning from them is important for personal growth as a trader.
• 🔄 Recognizing when a trading slump is ending and returning to normal trading behavior is part of the recovery process.
• 📋 Maintaining a systematic and robotic approach to trading can help minimize the impact of emotions on trading decisions.

Q & A

What is the main topic of Jared Wesley's lecture?

The main topic of the lecture is how to overcome a trading slump, which is a common experience for traders.

Why is understanding statistical probabilities important for traders?

Understanding statistical probabilities helps traders to not overreact during losing streaks, as they can recognize that such events are within the realm of normal trading experiences.

What does Jared Wesley suggest traders do when they experience a slump?

Jared suggests that traders should review their trades, understand their expectancy and probabilities, and not overreact. They should stick to their trading plan and rely on the odds.

How does Jared Wesley relate the concept of a trading slump to a sports analogy?

He uses the analogy of a baseball hitter going through a slump, where they start consciously thinking about their batting stance and technique, which were previously subconscious.

What is the significance of the 5-day losing streak that Jared Wesley experienced?

The 5-day losing streak was significant because it was the worst in 10 years for Jared, affecting his psychology and leading to poor decision-making in subsequent trades.

What does Jared Wesley advise traders to do when they have a winning streak?

He advises traders to maintain a systematic approach and not to overcomplicate the trading process, even during winning streaks, to ensure consistency and avoid emotional decision-making.

Why is it important for traders to track and review their trades?

Tracking and reviewing trades help traders identify mistakes or errors, understand their performance, and make informed decisions based on actual data rather than emotions or assumptions.

What is the role of a trading buddy or accountability partner in a trader's process?

A trading buddy or accountability partner provides an external review of the trader's actions, helping to identify any missed errors or areas for improvement that the trader might not see on their own.

How does Jared Wesley define a good trade versus a bad trade?

A good trade is one where the trader follows their plan and executes trades based on their strategy, even if the trade ends in a loss. A bad trade is one where the trader deviates from their plan due to fear or other emotions, leading to poor decision-making.

What is the concept of 'reversion to the mean' in trading?

Reversion to the mean is the statistical phenomenon where extreme values in a set of numbers tend to be followed by values closer to the average. In trading, it suggests that after a series of losses, the trader is likely to experience a return to more average or positive results.

Outlines

00:00

📈 Introduction to Trading Slump Lecture

Jared Wesley of Live Traders introduces the topic of overcoming a trading slump, a common experience for traders. He emphasizes the importance of understanding statistical probabilities, batting averages, and the psychology behind trading. Jared shares his own recent trading experiences, including a successful trade on Microsoft and the emotional impact of a losing streak, highlighting the need for a structured approach to trading.

05:00

📉 The Difference Between Investing and Trading

Jared discusses the distinction between investing and trading, using a personal anecdote of a trader who suffered significant losses. He stresses the importance of long-term investment strategies and the dangers of short-term trading without proper knowledge or strategy. Jared advises the trader to invest the remaining capital and walk away, emphasizing the need for patience and understanding in the market.

10:06

🔄 Trading Psychology and Recent Losses

Jared delves into the psychological effects of recent losses on trading decisions. He describes how a five-day losing streak affected his own trading psychology, leading to premature exits from trades due to fear and anxiety. Jared uses specific trade examples to illustrate how past losses can influence current trading decisions, even when they are not rational.

15:06

📊 Analyzing Trading Performance

Jared provides a detailed analysis of his trading performance, including a review of specific trades and the outcomes. He discusses the importance of sticking to a trading plan and the consequences of deviating from it due to emotional reactions. Jared also reflects on the impact of a recent winning streak and how it can lead to complacency and poor decision-making.

20:09

🎯 Handling Trading Slumps

Jared offers advice on how to handle trading slumps, emphasizing the inevitability of such periods for all traders. He suggests reviewing trades for mistakes, maintaining a long-term perspective, and understanding the statistical likelihood of losing streaks. Jared also discusses the importance of money management and the potential pitfalls of trying to recover losses too quickly.

25:09

📉 Understanding Expectancy and Probability

Jared explains the concept of expectancy and probability in trading, using the analogy of a baseball player's hitting streak. He illustrates how understanding the statistical likelihood of winning and losing streaks can help traders manage their expectations and reactions to market fluctuations. Jared encourages traders to adopt a probabilistic mindset to avoid emotional reactions and maintain a systematic trading approach.

30:10

📝 The Importance of Tracking and Reviewing Trades

Jared stresses the importance of tracking and reviewing trades to identify patterns, mistakes, and areas for improvement. He discusses the benefits of having a trading buddy or accountability partner to provide an objective review of trades. Jared also highlights the need for traders to understand their own trading statistics to stay grounded and avoid overreacting to market movements.

Keywords

💡Trading Slump

A trading slump refers to a period where a trader experiences a series of losses or underperforming trades. In the video, Jared Wesley discusses how traders can overcome such slumps, emphasizing the importance of understanding statistical probabilities and maintaining a disciplined approach to trading.

💡Psychology and Mindset

The psychology and mindset of a trader play a crucial role in managing the emotional aspects of trading. The video highlights how a slump can affect a trader's mental state, leading to impulsive decisions and deviations from the trading plan. Maintaining a positive and rational mindset is essential for consistent performance.

💡Statistical Probabilities

Statistical probabilities are used in the video to illustrate the likelihood of experiencing a trading slump. By understanding these probabilities, traders can better prepare for and react to such periods, avoiding overreaction and maintaining a long-term perspective on their trading performance.

💡Batting Average and Win-Loss Ratio

The batting average and win-loss ratio are metrics used to measure a trader's performance. In the context of the video, these ratios help traders understand their expected outcomes and the frequency of potential slumps. A higher win-loss ratio or batting average can reduce the likelihood of experiencing extended losing streaks.

💡Money Management

Money management strategies, such as setting risk limits and determining position size, are crucial for protecting a trader's capital during a slump. The video emphasizes the importance of adhering to a disciplined money management plan to prevent significant losses and maintain the ability to trade through difficult periods.

💡Reviewing Trades

Regularly reviewing trades is a key practice for traders to identify mistakes, learn from them, and improve their trading strategy. In the video, Jared Wesley suggests reviewing trades to understand the reasons behind a slump and to ensure that the trader is following their trading plan consistently.

💡Accountability Partner

An accountability partner is someone who helps a trader stay on track with their trading plan and provides an external perspective on their performance. The video mentions the value of having such a partner to review trades and offer objective feedback, which can be particularly helpful during a slump.

💡Expectancy

Expectancy in trading refers to the long-term average return per trade, considering both the probability of winning and the size of the wins and losses. The video discusses how understanding one's expectancy can help traders set realistic expectations and avoid emotional reactions to short-term fluctuations in performance.

💡Reversion to the Mean

Reversion to the mean is a statistical phenomenon where extreme outcomes are likely to be followed by outcomes that are closer to the average. In trading, this concept suggests that after a losing streak, the market may provide opportunities for the trader to recover, assuming they continue to follow a sound trading plan.

💡Overreaction

Overreaction in trading involves making impulsive decisions based on emotions rather than a rational analysis of the situation. The video warns against overreacting to a trading slump, as it can lead to abandoning a well-thought-out trading plan and exacerbating losses.

Highlights

Jared Wesley discusses overcoming trading slumps, a common experience for traders.

He emphasizes the importance of understanding statistical probabilities and win-loss ratios in trading.

Jared shares his personal experience of a trading slump and the psychological impact it had on him.

He differentiates between investing and trading, advising long-term perspective for the former and short-term for the latter.

Jared highlights the importance of sticking to a trading plan, even during a slump.

He shares a specific trade example where he exited early due to fear, costing him a significant profit.

Jared discusses the impact of previous losses on a trader's psychology and decision-making.

He provides advice on how to handle a trading slump, including reviewing trades and maintaining a long-term perspective.

Jared emphasizes the importance of not overreacting to a losing streak, as it is statistically expected.

He explains the concept of 'reversion to the mean' and how it applies to trading performance.

Jared shares his own trading statistics and how they help him manage expectations during slumps.

He advises traders to track their trades and review them regularly to identify and correct errors.

Jared stresses the importance of having a trading buddy or accountability partner to review trades objectively.

He discusses the impact of batting average and win-loss ratio on the frequency of trading slumps.

Jared provides a baseball analogy to explain the statistical likelihood of winning and losing streaks in trading.

He emphasizes the need for a systematic and robotic approach to trading to minimize emotional risk.

Jared concludes by encouraging traders to learn from their experiences and improve their trading strategies.

Transcripts

hey guys Jared Wesley here of live

Traders and it is that time of the week

it's lecture time guys this week we're

going to be talking about how to

overcome a trading slump why because

this is something that every single

Trader has been through there is not a

Trader that's traded ever that hasn't

gone through a trading slump okay so

it's a very important topic to talk

about I think there's a lot of things

that you guys don't understand about

your trading that we're going to talk

about today statis itical probabilities

batting average win loss ratios what a

good trade looks like what a bad trade

looks like what you do after a losing

streak what you do after a winning

streak how different your psychology and

your mindset is I mean this is a big

time lecture that encompasses a lot of

stuff guys it's a good one and I would

stick around for it all right if you

like the videos click that like button

smash Hammer that subscribe button I am

Jared Wesley of live Traders let's get

to

it

this week's lecture topic

is how to handle a trading slump it's

something that we have all had every

Trader that's been trading for more than

a few days has had a slump and often

times they're

unexpected and often times they come

after some of your best moves uh we get

a little bit ahead of ourselves and we

think our doesn't stink and we're

really just that good um and then boom

the market slaps you silly right brings

you back pulls you back to reality um

and uh the question is how do we handle

it uh because sometimes trading slumps

carry on after the slump is over and

that's something we're going to talk

about here right when a slump ends

you're still jaded right you're still

scarred from the slump um and and that

can have an adverse effect on your next

five or 10 trades until things go back

to quote normal uh and so we're going to

talk a little bit about that today and

how you can how you can handle it and

some of the things uh that you you might

want to do to to get yourself out of a

slump as well all right but before we do

that and I have to admit this is a

rehash this is a rehash but uh when will

the insanity stop oh my gosh stock

market losses how do y'all cope I've had

a terrible 8 months in the market from a

peak of 340 my account is now down to 88

Grand with zero cash to use um ouch you

know how are others dealing with this

downturn feeling really sad earlier I

wouldn't think before spending two or

three grand and stuff now I think about

even dinner for 80 bucks guys the first

thing here is this there's a difference

between investing and trading right and

this person when you go from 340 to 888

Grand you have to ask yourself how did

you get to

340 right think about what I'm saying

this person's clearly not understanding

how they got there they either got there

through dumb

luck

or yeah dumb luck that's it right they

got there through dumb luck or dumb luck

that's pretty much it uh you can read

this whole thing down more than 200

Grand uh money which would have been

nice to use well think about it all that

stuff I feel so behind my friends and

peers some of them who got lucky as they

never invested in the market and some

others who pulled out last year to buy

houses guys just listen to this for a

second reread that sentence I feel

behind my friends and peers some of whom

got

lucky mirror

anybody anyone hand this man a

mirror this person needs a mirror

because they think other people are

getting lucky and this person by saying

others got lucky you're kind of implying

that you got unlucky right that you got

unlucky I'm doing great with all the

knowledge I think I

have I don't understand you don't have

any knowledge you got lucky and you

don't know you're lucky you don't have

knowledge okay you think you have

knowledge you're the most dangerous kind

of person the person who thinks they

know but they don't know right so

anyway you have to understand there's a

difference between trading and investing

and investing is a long-term thing

trading is a shorter term thing now can

you trade yearly charts monthly charts

sure you can all right um but if you're

talking about investing guys I want you

to take a look at this and this is for

everybody all right I showed this slide

I think I showed this in professional

wealth building strategies and I showed

this also a couple years ago in 1921 the

Dow was at 64 okay the Dow peaked it

wasn't 38,000 it's higher somebody can

tell me what the Dow peaked at and I'll

put it in here but the Dow peaked at

over over 38,000 in January of 2024 okay

Cliff remembers that well you remember

kind of right o anyway that's a

590 fold increase $11,000 is $590,000

right where will it be in 2032 2042 52

62 Etc where will it be the most

reasonable answer is higher so when I

tell you guys invest in the market I'm

telling you that because I know 10 years

from now 20 years from now 30 it's going

to be higher than where it is today

there are very few exceptions in Market

history where that isn't true so when

you invest you're setting up your future

when you invest in real estate you're

setting up your future

stop having such a shortsighted view of

the world and realize that good things

take time okay so invest I don't care if

it's $10 a month you take some money

okay take some money and invest it all

right because at some point you're going

to be 5 years older than today and 10

years older than today and 20 years

older than today and you'd probably

rather have more money 20 years from now

you know not only so you can have a

better life but also in is going to eat

into some of that stuff as people have

seen recently so this is to the person

who got very lucky on the last slide

take the 88 Grand you have left put it

into the market and walk away you're not

going to get rich quick you're not as

good as you think you're lucky you're

not very good you're a gambler and you

don't realize it anyway let's dig into

this so do you guys

remember oh was it yesterday let me see

when was this that two days ago okay all

right I took micros oft on a pretty good

play here all right wide range Red Bar

followed by a narrow range resting bar

and then our trigger bar right here

which is a fairly standard 5 minute

three bar play I called this trade in

the room okay I got in at 41780 my stop

loss was

41980 um and well I'll be honest I got

out for a small gain okay you can see

here uh at one point I was up about a

th000 bucks on this thing and uh long

story short it moved down about half of

an hour and then it proceeded to go all

the way up pull back up and right here

right here it came 11 cents from my stop

loss and then chopped around pulled back

chopped around and then ultimately hit

Target full Target was like

41575 or something like that 41580

something like that that was full Target

okay that nervousness cost me $2,000 and

here's the crazy part I only had a half

position on this if I had a full

position that nervousness would have

cost me

$4,000 why because as the market went

lower Microsoft was struggling to go

lower and it chopped around and went

against me and all this but the plan is

the plan and this is what this is a

lesson I want you to understand yaroslav

I'm talking to you and everyone else I'm

talking to you the plan is the plan

you put the plan together when you were

calm cool and collected and then as soon

as the battle starts you start throwing

your PL out the window and then and then

you get out and you're like I knew I was

right I knew I was right literally as

this thing was coming back almost about

to stop out I was literally happily yes

I'm being honest with you guys happily

pulling up my trade tracking spreadsheet

getting ready to chalk this up as a loss

right you know how you do your back

testing and forward testing I was

getting ready with a little face

grin oh I'm going to chalk this bad boy

up as a loss look how much money I saved

that was my thought process look how

much money I saved not dude you're an

idiot for breaking your plan that wasn't

my thought process my thought process

was look how much money you saved well

then it came all the way back down to

hit Target who's the idiot now right

who's your daddy so this is one okay

this is one

then you guys remember this trade this

was last week okay I think it was Friday

this is a little one minute breakout

coincidentally also on Microsoft that's

just coincidence and it's pretty nice

you get a wide range green bar Little

Red Bar wrestling you just kind of hang

in this range so 41650 was the entry

4450 was the stop loss I gave it a lot

of room like I typically do for most of

my trades right and that looked pretty

solid okay wait

wait what happened the stock popped up

maybe a dollar something like that

pulled all the way back I got nervous

and I exited a break even costing myself

two grand now I put this picture on the

right hand side so you can see exactly

what I was looking at because this right

here is really this right here right

that's that same area Okay um that line

is off a little bit isn't it won't let

me straighten it out oh well there we go

all right so point I'm making is I got

out exactly where you're supposed to get

in right I took the breakout and it

popped but the retracement was deeper

than I liked I was hoping the

retracement would stay on the red line

right that's what I was hoping right but

it went deeper than that

and

I got out now right now everybody in the

world that's looking at this slide is

going why did you get out you're an

idiot dude that thing did nothing wrong

absolutely completely totally nothing

wrong it broke out it pulled back it

didn't even get anywhere remotely close

to your stop loss my stop- loss was down

here at 14

4450

this thing went down to 4116 it wasn't

even

close now why the F would I do something

so

stupid anybody why would I do something

so dumb I mean it looks pretty dumb in

hindsight doesn't it it looks really

stupid in hindsight in real time you're

like getting nervous and flustered and

all these like oh my gosh it popped up a

dollar it's pulling back it's pulling

back it's pulling back it's pulling back

what the heck is going on blah blah blah

blah blah blah blah right now you guys

aren't thinking that way you're not

thinking that way cuz you can see the

future right you can see the forest

through the trees but the why the F did

I do this

why no one

knows well fear is definitely the heart

of the problem but what caused the fear

that's the heart of the problem but what

caused the fear

why would I get upset about a stock that

goes 50 cents below break even why it's

nothing I held on to freaking meta today

and that went like 20 cents from

stopping

out

Stacy Stacy Stacy Stacy has the

answer why did I do

this why did I do this let's take a look

let's take a look

okay here's a turnaround bar on

Shopify stopped me out by seven cents

and then it

worked here's a

trade oh here's

Microsoft anticipation stop Snooki me in

at like 4795 and then just stopped me

out okay and by the way this was on

February 2nd this was on February 6th

this is another one here on Amazon uh

here's one that we got in right there

another anticipation stop right right

there triggered me in one penny at the

high of the day pretty decent little

play too right and then just boom rolls

over boom another stop

out oh wait I'm not done yet here's Nike

here's a stock

that kind of broke

out got in here stupid bad trade just

stupid bad trade right this is what a

dumb trade looks like do you guys see

where I'm going with

this Stacy has the answer the answer is

previous recent

losses I took

five five consecutive down

dayss I don't remember the last time I

had five consecutive down dayss that's

how long it's been it could be 5 years

10 years 50 I don't even know I I can't

even give you an answer that's how long

it's been so what's my point what am I

making what's the point I'm making when

you have something that is either never

happened to you or extremely unusual

highly unusual happen to you what does

it do to your

psychology what does it do it messes

with it doesn't doesn't it it's like a

baseball hitter going through a slump

what do they do when they get to the the

Batters

box they start thinking are my feet in

the right position are my hands in the

the right spot am I leaning over the

plate too much things they never thought

about before things that were just

subconscious before now they're

consciously thinking about it it's like

a basketball player who's 0 for 10 and

they're wide open for the game-winning

shot and they pass the ball we've seen

that happen before in pro sports right

they're two for 10 or one for 10 they're

shooting bricks and they're wide open

for the game-winning shot and they pass

the ball Why recency by

it got to you the market got to you

right so we take a look at it and go

okay here it is I broke it down for you

I had a five-day losing streak worst

streak in 10 years okay and that's Ben

Simmons all the time Jordan right 5-day

losing streak it's the worst in it might

be longer I don't know I don't know how

long it's been during the losing streak

during the 5-day losing I had two

anticipation stops and I had two stops

on the penny that eventually

worked I wanted to get out of a trade

that looked bad but I stayed in per my

plan you guys remember the Microsoft you

guys remember the day where I asked you

I actually literally this is how jaded I

was you don't ask other people if you

should follow your plan the answer is

always of course you follow your you

don't ever ask somebody should I follow

my plan I asked the chat room should I

stay in Microsoft or get out do you

remember when I asked you guys that like

a week and a half

ago and you guys most of you except for

one person said yes stay in guess what I

did I stayed in I stayed in and guess

what happened it stopped out I stayed in

and it

stopped and I thought you knew it wasn't

going to work but your plan is your plan

so and on top of wanting to get out and

stopping out and on top of two

anticipation stops and on top of two

stops that happened in less than a

nickel I also took a bad trade on Nike I

took a really boneheaded bad trade on

Nike

okay I had two days where where I

started the day up and ended down

started day up 2500 bucks and I ended

down I followed my plan during this 5day

slump except for the bad

trade that was a bad trade I did

anticipation stops I took them proudly

stops that were a nickel or so that

eventually worked proudly took them

wanted to get out of Microsoft I stayed

in it I stayed in it okay I follow my

plan pretty well I don't really recall

doing anything outside of it other than

the bad trade I was

frustrated so what

happens now think about what I'm saying

here think about what I'm saying

here both of those trades that I took

let's go back let's go back this trade

on

Microsoft this was my second trade of

the

day this trade on

Microsoft was my second trade of the

day what do you think happened on the

first two two trades on those days on

those two days both of these were the

second trade of the day different days

second trade what do you think happened

on the first trade any

guesses first trade of the day

was

were nobody's got a

guess Stacy Says

losers

you're all wrong except for Derek they

were

winners they were

winners they were

winners so why did I get out of the

second trade too

soon because of this I had two days

where I started the day up and ended

down and I said to myself

Jared after five losing days in a row

you got to feel a victory here you have

have to feel a win so when I started the

day up five grand and Microsoft started

looking like it wasn't going to work and

I realized I could go back to break even

today and I already had two days where I

started up and ended down

psychologically my mind was playing

games with me I'm sitting here saying

five effing days in a row you were R and

now you you started the day up we've

been here before twice you started up

and finished down I'm not going to do

that again today so I took the second

trade and it didn't go in my favor

immediately the way I wanted it to and I

got nervous and said you know just take

the money and run just take the five

grand and walk away well I should have

taken s or

$8,000 instead I walked away with

45 because of what happened during the

slump it hadn't left me yet it was still

lingering right and that's what that's

what slumps are right right we do the

wrong thing what you're

look when you're going through a

difficult

stretch the only thing you say to

yourself is come on Market throw me an

olive branch throw me a bone throw me an

olive branch right that's all you're

thinking just give me one good trade

throw me an olive branch I don't care if

it's a good trade or I just get lucky

just show me a little bit of love and

what does the market do it shows you

love and

abundance I tell you this all the time

no matter how bad you mess

up the market will always give you an

opportunity to fix it always give you an

opportunity to fix

it well guess what the market did for me

after that five day slump gave me six

consecutive winning trades until

today was my first losing trade so I'm

six for seven since the slump and today

I started with a winner and I still made

money today but it showed me six

consecutives showed me 30,000

worth of winning

trades

okay the market gave me everything I

asked for you know what also happened

reversion to the

mean I don't have five down days almost

ever so of course you should be on a

streak of well I'm on a streak now of

four up dayss and that should probably

continue till I get to 7 to

10 where am I going with all

this well couple things one everyone

will go through this everyone will go

through a trading slump okay some

people's slump is two days sometimes

it's two weeks sometimes it's two months

okay some last longer than others but no

Trader is perfect will go through slumps

okay experienced or novice you'll go

through it statistical probability

guarantees at some point you'll have a

slump so how do you handle this

inevitability and that's the key word

here let's let's highlight this in

yellow okay how do you handle this

inevitability it's not an if it's a when

it's a guarantee you'll go through a

trading slump it's a 100% guarantee no

one is immune to it if you're really

good your slump will be shorter than

someone else's okay exactly it's not

what happens to you it's how you react

so when the market threw me the Olive

Branch I didn't react properly I reacted

mostly right mostly right but not

entirely right

so of the 30 grand the market gave me

offered me I only took about 23 Grand of

it well that was good because it was

enough to get me out of the slump and

back on the top back in the green again

right but I cost myself Seven

Grand because I knew better or because I

didn't want to have another day where I

was up and went to break even or went

down I didn't want it to happen I wasn't

at that moment in time I wasn't acting

logic ically I wasn't just saying hey

don't worry about it your plan will

bring you out of this reversion to the

mean will happen I wasn't acting that

way I was basically saying I don't care

I just want to feel

good I don't care I just want to feel

good and here's the irony and I've said

it to you guys many many many many times

here's the

irony in feeling good in the moment you

end up feeling worse in the long

run the instant gratification that you

experience is way

worse or I should say isn't as as good

as the long-term pain does that make

sense the long-term pain you'll feel

after the

fact weighs on you much heavier than

that short-term

gratification and this is what I I'm

trying to impart in you guys so that

when you have a slump and assuming you

review things we'll talk about that in a

minute assuming you review things some

people just don't even know why they're

having a slump they're just like ah they

throw at the wall and hope it

sticks that's not that's not a good

Trader okay you have to understand

guys see this this happens this is

all on the same day by the way this was

all on the same day run three bar play

shake and bake PayPal three bar play

shake and bake and then it worked JD

three bar play shake and bake and then

it worked do you know how effing

frustrating days like this are if you

have an 84% play in your plan then

you're probably okay but what if you

don't you're three are down and two of

them worked your three are down and two

of the three trades

worked and this is one of the reasons I

use wider stops now as well entry here

stopped out entry here stopped out entry

here and then PayPal worked and JD

worked you're going to have those days

and no one cares except for you no one

cares those say yeah sorry to hear that

Brian sorry to hear that Jordan no one

cares until it knocks on their

door so know that when this happens the

opposite will happen as well you'll have

trades like today Microsoft we had a $2

stop loss and it held our stop loss by

like 20 cents or 30 cents it pulled back

some 80 90% and held our stop

loss sometimes they'll stop you out by

5% 10% by a nickel by a dime

okay

you getting tired of getting emails Jeff

I'm just messing with you so obvious

things to do obvious things to do review

your trades to see if you made any

noticeable mistakes that that's obvious

right go back and take a look at the

trade you took and let's be honest

you're not going to know the trade you

took if you don't track the trade you

took okay did you follow your plan did

you do anything stupid or foolish take a

really bad trade like Nike okay did you

get caught on the wrong side of the

market meaning did you take a good trade

on the right side and maybe a news

report came out maybe something very

unexpected came out like news right what

does your trading buddy accountability

partner have to say oh I don't have one

of those why not you don't want to have

a third party or second part of review

your trades see if there's something you

might have missed review your work okay

how this happened or has sorry has this

happened to you before and then the

answer you got to ask is if yes what did

you do right if yes what did you do and

then if nothing comes to mind then you

got to ask well then

what right then what if nothing comes to

mind meaning if you followed your plan

you didn't do anything stupid you didn't

really get caught on the wrong side of

the market or least it wasn't your fault

your trading buddy looks at it and goes

I don't see anything wrong with

this what do you do so let me give you a

scenario you you've lost six trades in a

row over 3 days okay what should you do

on the fourth day use a lower risk maybe

half

Lots take the day

off double your risk to get your money

back o oh that this one people are like

oh yes yes Jared it's number three it's

number

three limit yourself to only one trade

do nothing different does the answer

change for novice vers professional

Traders everyone's like number three

number three I'm stuck number three this

is the answer double your risk get your

money back it's definitely not this one

right it's definitely not this one but I

want you to take a look at this before I

give you the answer just take a look at

this really think about it and then

think about what have you done in the

past when this happens to you well we

already did that right we're back here

Felix right that's the slide before did

you follow your plan did you do anything

stupid did you make any noticeable

mistakes right we've already done that

now okay we're making an assumption that

people have done this right and now

you're like well what do I

do implant an AI chip in your

brain that's the answer Jordan has it

cuz Jordan's always right except for

like a week or two ago when he got two

wrong which is like that was like me

having five down Jays Jordan getting two

things wrong was like whoa whoa assuming

you are within your money management

limitations and you figured you're

taking good trades like you you didn't

find any egregious

mistakes you do nothing you've done

everything you're supposed to

do and the odds just weren't with you

like we talk about all the time if you

have a 50% batting average you're going

to lose five trades out of 10 it just

you don't know the order in which you're

going to lose those five trades they

could be the first five trades over that

3-day period we just talked about then

it's it's a problem isn't it but if you

go winner loser winner loser winner

loser winner loser winner loser it's not

a problem is it cuz you're up every day

you're actually up 5 days in a row but

you went winner loser every day if you

went loser winner loser winner loser wi

you're still up but if you went loser

loser loser loser loser now all of the

sudden your mind's playing gymnastics

with you your mind's going something's

wrong something's wrong well why is

something wrong why does something have

to be wrong if you bat 50% you're going

to lose five out of 10 you have no idea

in which order that's going to happen so

why does it have to be wrong it there

might be there might

be but we already nip that in the butt

by going over all your trads okay yes

that was like what three four years ago

in August something like that time flies

but it was you're right he was down 14r

and he ended up the month slightly above

water you're right it's true Jordan but

most people weren't here then and don't

have that recollection so

scenario if you win on reduced risk you

aren't helping yourself okay then go

back to losing again when you raise your

risk back up chasing your tail this

happens this is Murphy it's like all

right I'm going to lower my risk and

then you have a five trade winning

streak you're like all right I'm ready

to raise my risk again and then you go

back into the losing streak and you're

like what the right the Market's just

got you chasing your tail on a hamster

wheel if you limit yourself to one trade

perhaps that's a very giving trading day

so you're taking three trades on the bad

days and one trade on the good day if

you double your risk you could dig a

deeper hole right and that's what a lot

of people unfortunately do you know why

it's like a climactic they're like it

can't go any lower that's what that's

the psychology people like it can't get

worse yes it can you've heard the

expression the market can stay

irrational longer than you can stay

solvent so while you might be down seven

trades in a row it's absolutely possible

you could be down 10 trades and if you

double your risk it's like being down 13

trades right taking the day off could

work if you really need it that could

work but again you could be missing out

but if you really need it because your

mind's just messed up then take the day

off thoughts your risk should be small

enough that none of these slumps have a

major impact on your account or your

psychology right batting average and win

Ross ratio have a huge impact on the

prevalence or frequency of these slumps

read the second part your batting

average win loss R your expectancy has a

massive impact on the prevalence or

frequency of these

slumps guys if you're a three All or

Nothing Trader you're going to see five

losses in a row rather frequently

frequently like almost every month not

exaggerating almost every month you'll

have a five trade losing

streak almost every month okay but if

you're doing one RL or

nothing that shouldn't happen nearly as

often right have you ever given it any

thought as to the

likelihood statistical likelihood of an

extended losing streak given your style

of trading and I bet you the answer for

most people is no no and it goes back to

this simple thing do you treat this as a

business are you just hacking away at

this thing hoping it's going to work out

for you do you see where I'm going with

all this trading buddies reviewing your

trades videotaping yourself filling out

a trade tracking spread journaling all

your trades knowing what your expectancy

is all those things most people don't do

that like to 90% of Traders don't

do any they think just because they have

their p&l written down at the end of the

day that they're tracking their stuff

they're

not so when this happens they really

don't know how to fix it because they

don't have anything to fall back on

right they don't have any statistics to

fall back on or odds to fall back on so

let's use this

example many of you know who this is

some of you don't Mike Trout is a great

baseball player right baseball player

one of the best okay Mike Trout at the

time of this which is I don't know a

year ago or so is a 303 career hitter

that's his career batting average 303 he

hits

safely in 71% of his games so AB means

at bats at bats if he has one at bat the

probability of a hit is 302 okay percent

of Trout's game started 1 2 okay meaning

almost all of his games that he starts

he has more than one at bat as in like

99% of them

98.8% two at bats that's about 11 or 8%

of his games three at bats 30% four at

bats 45% but take a look at the

probability of a hit one at bat two at

bats three at bats four at bats five at

bats six at bat look at seven he's had a

couple games in his career where he's

had eight at bats eight

when he has eight at bats there's a

94.4% chance he gets a hit when he has

one at bat there's only a 30% chance so

the more swings he gets the more

likelihood he gets a

hit guys where am I going with

this like Jared that's great so that's

obvious okay

well the more swings that you guys get

the more trades that you take

is a higher

likelihood of a winning streak or a

losing streak the more Trad you take

there's going to be a higher likelihood

that you have a five trade 10 trade

losing streak it's less likely if you

just take five trades then if you take

5,000 trades right A F trade losing

streak over 5,000 trades is almost a

guarantee five trade losing streak if

you've only ever taken five trades is

pretty slim so let's take a

look now this gets a little you know a

little mathy for you this is where you

know people like OE love this stuff

beating Joe demaggio's 56g game hitting

streak okay beating his 56g game hitting

streak for those of you who don't know

Joe deio look him up okay it's the

longest hitting streak in major league

history so using 717 right how

frequently he gets on base and 56 games

our formula giv us a

0.0025% chance of Mike Trout recording a

56 game hitting streak in 162 Game

season

okay or about 1 in 3.9

million 1 in 3.9 million

okay you can read this for comparison a

true Talent 302 hitter has about a 1 in

780,000

780,000 chance of hitting 400 over 500

bets okay with a probability that low

even simulating a million Seasons with a

true Talent 302 average and trouts at

bat distribution might not show any any

successes which is in fact what happened

I repeated the SIM for another million

seasons and ended up with one successful

streak you're like Jared I'm lost man

what are you talking

about I'm relating this to trading and

you'll see in a

second the odds of Mike

Trout having a 56 game hitting streak

are literally in the millions okay 3.9

to be exact

okay so that's pretty much off the table

for him does that make sense it's pretty

much impossible for for all intents and

purposes right in reality

speaking in

trading what does it look like for you

right how many days how many trades

sorry how many trades a day do you take

one two 3 10 what's your management 1 r

two R three R do you follow your plan

get out too soon stay too long what

other factors might affect the losing

streak okay hold

on so

now if you have a 50% batting average

then

statistically you will have four heads

in a row at least once every 16 attempts

now again it doesn't have to happen in

that order three in a row once every

eight

attempts okay obviously there is more to

trading than that

but it does show the high likelihood of

a losing streak with only a relatively

small number of

Trades I mean to lose four in a row

potentially or win four in a row

whatever okay once every 16 trades is

basically two or three times a month

potentially right with a 50% batting

average potentially you just don't know

in which order it's going to

happen okay so what's the lesson don't

overreact the OD odds are the odds if

you understand the odds it will help you

not to overreact see overreaction would

be if you had a Joe demaggio season as

Mike Trout that would be an overreaction

because you'd be like holy this is

one in4 million but if it's

like one every 16 trades that this is

probably going to happen then that's

completely within the realm of normaly

it's not outside the realm of normaly

it's actually

expected and if you know it's expected

why would you overreact because you know

it's expected it's when you don't know

it's expected because you don't know

your expectancy your odds and your

statistics that's when your mind starts

to play games with you now don't get me

wrong you might know it's expected and

your mind could still play games with

you but it's easier to accept it when

you know it has a real possibility of

happening right of course you might be

doing something wrong which is why it's

always a good idea to have your trades

reviewed but losing streets can be very

common depending on your approach

particularly your target goals three

four five R you're going to have a lot

of losing streaks so let's take a

look winning and losing streaks hit rate

Max likely losing streak Max likely

winning streak let's take 50 trades in

this case

okay you have a 10%

chance okay of a 37 trade losing

streak on 50 trades

okay think about that if if your hit

rate's 10% right if you have a 10%

batting average right let's say you're

doing 10 R All or Nothing hypothetically

10 are all or

nothing you have Max likely losing

streaks 37 in a row if you have a 10%

batting average okay now let's go to 50

because that's what I was talking about

if you have a 50% batting average

and you took 50 trades let's call it one

month 50% batting average 50 trades your

max likely losing streak is six trades

your max likely winning streak is six

trades does that make sense so if you

start getting near those areas four five

six even seven you start going there's a

good chance assuming cuz Ali talks about

this too assuming consistency assum

assuming you're not just throwing mud at

the wall right that your losing streak

should be close to finished and you

should hopefully move into a winning

streak soon but if you have a lower

batting average let's call it 30% maybe

you're shooting for four our targets you

could have 11 trade losing streak once a

month it says likely Max likely losing

streak so again if you're shooting for

say four hour or nothing and maybe your

batting average is like

32% it's a good there's a good chance

you're going to have a 10 trade losing

streak every month every

month and your Max winning streak might

only be three but those three trades

also make 12 R don't

they understanding the expectancy and

probability is an important part of what

calming yourself down

mentally because if you go in and you

truly believe something that is

statistically inaccurate you're likely

to do something stupid let's say you

truly believe that with a 30% batting

average the biggest losing streak you

should take is three let's just say in

your heart for whatever reason you

believe that a three trade losing streak

is the worst it should ever

get well your expectation your thought

process is not in alignment with

statistical

reality and therefore when it happens

and you have a five or six or seven

trade losing streak you might start

ripping up apart your trading plan going

this doesn't work this is wrong and

you're sitting there going wait it's

well within statistical probability that

this could happen it's actually done

nothing wrong do you see the different

thought process whereas if you know the

it's it's likely possible you're going

to well I don't need to change anything

I'm I'm within the bounds of

reasonableness but if you believe it's

not you might start tearing everything

down and changing everything when in

reality you might be ahead of the game

you actually might be doing better than

the statistical reality you don't even

know okay so I just brought this up

because I just wanted that you guys to

think about that over the course of a

year I'll take 500 trades well if I have

a 50% batting average over the course of

a

year there's a likely chance I'll have a

nine trade losing

streak so use the 500 instead of the 50

because this is for me about an average

year 40 trades 50 trades a month

somewhere around there but I take some

time off so it averages probably about

500 a year give or take so if I bat

60% there's a likely losing streak in my

future of seven trades in a row there's

also a likely winning streak of 12

trades in a

row so the middle one here is more

likely for most people throughout a year

so if you start looking at this and you

think holy I am doing like three R

All or nothing and I'm shooting for a

40% batting average I am probably going

to have a 12 trade losing streak at some

point during the

year

probably prepare for it you

know exactly right the process is out of

your control it is what it is but you

can take pre-planned action to correct

it or at least mentally understand it

okay it's important

guys this stuff happens nothing terribly

wrong with these trades Bam Bam Bam stop

stop stop and then two of them

worked take it on the chin that day what

if you took six in a row like this just

got to go back to your sheet and go okay

well I'm 300 trades into the year I bet

60% and I lost six in a row oh wow okay

look at that I'm kind of within the

realm of reality now it doesn't feel

very good and I'm frustrated but it's in

the realm of

reality right it's not insane if you had

a 90% batting average and you had seven

losing trades in a row then that might

be

different that might be

different okay it's about adopting a

problemistic probabilistic mindset to

remove emotional risk yes exactly right

exactly right Kirk but here's the

problem Kirk most people don't know they

just don't understand the likely

probability and possibility of these

things happening to them so when they

happen they're completely Gob smacked

they are literally shocked like this is

impossible

why you're not as good as you think you

are and given your batting average the

probability suggests it's reasonable and

you think it's impossible right so I

hope that you guys have learned a little

bit about probabilities and statistics

as they relate to winning and losing

streaks and I hope you've also learned I

hope I've imparted in you that trading

is a mind and that how things

happen matters but it shouldn't I went

through a 5-day losing streak and it it

absolutely affected my winning streak I

still won on all those trades I just

didn't make as much money as I should

have because my mind was playing mental

gymnastics with me going I just don't

want to take the

loss well that's a problem because now

I'm breaking process when you break

process you mess with Statistics when

you do that you generally cost yourself

money so our goal is to be be as

systematic as robotic as we possibly can

I am not saying you're perfect and you

will make some mistakes we all will and

that's fine but we need to limit the

number of mistakes we make as much as we

possibly can and also stay reasonable

about what is happening that means

review your trades check your tracking

spreadsheet talk to other Traders really

get a good understanding and sense of

what you have done and if you look at it

and go I've done what I'm supposed to do

it just didn't work work then fall back

on the odds if you find a mistake or an

error then correct the mistake or an

error but you have to track your trades

and review them to know that it was an

error okay don't over complicate the

business track your trades review your

trades have someone else review your

trades do all of those

things and then rely on the odds but to

do that you have to be a consistent

Trader who takes consistent patterns all

right and knowing your stats so I hope

that this lecture was helpful for you

guys I hope that you learned something

and I hope you'll take some of this

moving forward the next time you're

having a slump or a winning streak

because it works with that too hey I've

won 10 trades in a row but statistically

you know Eight's like the max likely

okay well you're probably getting a

pullback soon like I just took six

winning trades in a row I had a loss

today that's statistically in the realm

of reasonable possibilities right we go

back baton 60 70% where are we up Max

winning streak eight trades okay okay

well I had six pretty close so I hope

you guys learned a bit hope that you'll

be better Traders because of it I'm

Jared Wesley of live Traders we'll get

back at it again next

week oh