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I can almost guarantee, that at one time or another in the future, if not already, you’ll be challenged and left questioning yourself after experiencing a large loss trade or numerous loss trades that accumulate in your portfolio. These losses could be due to unexpected market events, a natural string of losses that occur with any researched strategy, your own trading errors or a mixture of all three. Every investor is challenged at times as no human is immune to the pain of loss. But there are lessons to be learned. It’s these types of events that provide investors with an opportunity to learn from the past and to grow!
When times like these come along, sophisticated investors put pen to paper and force themselves to look at why losses are occurring. They review each trade over the loss period and assess which category trades fall into. If it is a random market event, dust yourself off and realise that it’s part of investing. If it is due to a natural string of losses that your researched approach goes through, same thing. If it’s due to your own trading and execution errors, then look at the errors and make notes as to how you can get back on track and minimise future mistakes.
Experienced traders and investors keep and maintain a trading diary or journal that forms the basis for recording these types of events and experiences. A trading journal (separate from a trading plan) allows you to review and monitor your trading and investment decision making, so that you can measure your errors, strategy and performance ongoing.
I hope you adopt the lessons and principles used by sophisticated and weathered investment professionals. The earlier you get into the habit of maintaining a trading diary, the more accurate your assessment will become, allowing decision making to become clearer.
To hide your head in the sand or to give up all together is a big mistake. You need to face the reality and become responsible for your investment decisions. The challenge here is to learn from past mistakes so that they can be minimised in the future. And then keep on keeping on……on the journey.