Last week an Alpha sent me this message:

I started live trading on 29th June with $2k capital and got this up to $7300 by the 4th July. Everything going well. Then on the 5th traded very poorly giving everything back and down to my initial capital.

I have been struggling since then to read the charts properly and I don’t understand what changed. Past 3 days I was trading very cautiously, small profits but bigger losses. Now capital siting at $1300.

I am kind of lost how to move forward now. Any advise will be appreciated.. thanks.

The first thing I asked was did they fully analyze that trading day and what went wrong?

That day I know what went wrong, I was on the wrong side of trade but kept scaling in expecting it to reverse. This was during the market open, it went up by 100-120 points or so and I was short. I think for me this day it was 20% of market not giving a chance to get out at breakeven or a small loss. Just that one trade I gave back about $5k.

I was in a fade trade waiting to get out when market opens, but it was so damn quick and I held you expecting a reversal.

So let’s jump in.

I’ve Been There..

There was a period of 3-4 months where I’d trade good for days then in one session give back all my profits. Luckily by this time I had solved me blowing accounts, but it was frustrating.

For me the biggest issues where:

Trading with too much confidence at too high a size. Most of my bad trades where fades where I was stubborn and failed to take a small loss or a small gain.

I solved this in 2 ways:

I identified the 2-3 triggers before I was going to execute a trade or when I was in a trade.

I then wrote down and placed in front of me unbreakable rules.

The advice I share here contains some of those rules.

Solving the Alpha Issue

Your confidence has been shot. It’s clear this one event/day shook you (as it should) and you aren’t trading the system with conviction.

It’s also clear that you don’t have great risk management rules you are following.

First question to ask…

Did the system fail you or did you fail the system?

Go back to that day and that trade and break it down. Study it. I bet there were multiple mistakes you made. Times you got an opportunity to get out that you didn’t take.

Risk management. There should be no way one trade knocks out multiple days of gains. Most likely you were too large a size in the wrong area.

Scaling in. You most likely didn’t scale in properly or if you did you ignored the opportunity the market provided you to break even.

In the RDTS with our scale in metric the market 80% of the time provides you at least one opportunity to get out at break even.

I think the 1% rule for how we trade is way to low. The rules I’d put on the system are as follows: I’d suggest putting drawdown limits somewhere between 5-12% of your account. If you it that you stop trading for the day. I’d even suggest the next day you trade demo to ensure you haven’t developed some arrogance in your trading.

Next, concrete steps.

Protect your capital at all cost. You are close to a psychological number of 1,000 in capital. The closer you get to this the more your emotions will kick in. If you get below 1K it will be very hard for you to psychologically come back from this.

I’d suggest you go back to demo trading until you have 3-5 green sessions in a row. This is after you do what I’m going to suggest below.

I’d also suggest you put a max drawdown of 100 on your account. If you hit that max drawdown you stop trading for the day. Then you trade demo for 2 days.

It’s simple really. With your run up from 2K – 7,300K you’ve proven you can trade the system, you just have 1-3 negative trading habits that are haunting you.

Identify the 1-3 things you did wrong.

I can say without even looking at the chart a few things you need to focus on:

Then write rules that you absolutely must follow.

Bonus – 4 Chart Insight

I can almost guarantee your trade was arguing with one if not 3 of the the charts in the 4-chart setup.

The first question I’d ask you is how long did your trade disagree with each chart in the 4-chart setup?

Specifically on chart 2.

There’s a series of rules right there…

  • If in a fade trade and I’m wrong for 7 minutes I get out.
  • If in a fade trade and momentum has been checked twice and held I get out.
  • Using Chart 4 If in a fade trade and in between 2 strong levels I get out.