About ten years ago, I decided to take control of my personal finances after I found out that my advisor lost nearly half of my portfolio during the financial crisis.
I decided to roll up my sleeves and get to work.
There I was… at the age of 50, ready to embark on a new journey…
And the only thing that gave me confidence was that idea that I couldn’t be as bad as my broker was.
However, it wasn’t a fairy tale start.
Sure, I can sit back and chuckle at it, now that I’ve made over $2M in trading profits…
But believe me, I was a deer in headlights when I started trading. I was overtrading and overwhelming myself.
However, that all changed once I switched up my approach.
Instead of thinking about all the money I was going to make, I started thinking about risk management and preserving capital. I also started to develop an investing plan.
Keep reading to learn how to build your plan.
When you’re trading stocks, it helps to start out with a plan. Think about it like this, you’re going to be putting your capital at risk… so you should know exactly what you’re getting into and should have some guidelines in place.
You see, a lot of traders don’t start out with a plan… and more times than not, they end up taking a massive loss and damaging their trading accounts.
However, that doesn’t mean you can’t get back up and recover from that loss.
As I mentioned earlier, I was once in that situation before… my broker lost 50% of my account… and I knew I needed a plan in place to get my account back into positive territory.
Now, I actually have experience with developing business plans, and it’s actually not that difficult to translate those skills
Assess the Situation
For example, the first thing to do if you’re trying to recover from losses is to assess your finances.
Basically, you want to figure out how much capital you have to trade, which will allow you to also figure out your risk tolerance. If you don’t know, the size of your account matters when it comes to brokers.
You see, in order to day trade, you must have an account of $25K+. If your account is below $25K, the Pattern Day Trader (PDT) rule will be enforced. In other words, if you buy and sell a stock in the same day, more than 3 times in a trading week… you run the risk of getting your account frozen for some time.
Basically, you want to figure out whether you’re in a financial position to trade. This will ultimately dictate your style of trading.
For example, just because you don’t have $25K+ in your account to trade with doesn’t mean you can’t still learn how to trade. In fact, there are scalable strategies out there that actually work around this and cater to those who aren’t always able to day trade.
Once you find a strategy that suits your personality, you should try to spot a setup and plan your trade around it. You can paper trade or even just write down your plan and look back at the chart later.
You see, when you’re trying to bounce back from losses, it’s all about controlling your risk.
One quick way to manage your risk is to develop a plan.
Trade the Plan
When you have a trading plan, you have “rules” to follow. Ultimately this helps with your risk management.
Think, if you’re just trading a stock… you don’t know where you’re getting in the stock, stopping out, or taking profits… you just want in.
To me, that’s reckless, and I have actually traded that way before… but not anymore, I’m calm, cool and calculated.
Planning my trades ahead of time helped me with that.
For example, here’s a look at one of my trading plans, which I sent out to my clients.
I know exactly where I’m looking to buy the stock and stop out in case things get sour. Now, I also know where my targets are.
When you have a plan like this… all you have to do is execute.
For example, let’s say you saw ATUS break above $25 (the neckline for the inverse head and shoulders pattern), and you bought shares at $25.15.
Well, here’s how the pattern works. We look for a fall in the stock price, followed by a rise to some resistance level (the blue horizontal line here). This forms the left shoulder.
Thereafter, the stock bulls back to a level lower than the right shoulder. Again, the stock bounces and reaches the resistance level. Finally, it pulls back to another level and rebounds… and then breaks above the neckline, typically.
Here’s a look at what the stock did.
Now, since there is a clear stop-loss area, you can just enter a stop-limit order, which you can read more about here.
If you take profits at any point… you may want to look to move your stop-limit price higher. Basically, this helps prevent you from turning a winner into a loser.
Once the trade is over, you should journal and note whether your plan worked or not… and whatever tweaks you should make. Now, if you’ve been stuck in the mud and looking for ways to time your entries and exits… then click here to watch the replay of my live trading session.