Some people might approach day-trading the same as riding a bike: Once you learn, you never forget. That’s true to a certain extent about trading, says Warrior Trading founder Ross Cameron. But he also warns that learning to ride a bike does not guarantee you will never fall off.
Both beginning and veteran traders regularly make mistakes. Ross Cameron says succumbing to emotions, often in reaction to a big loss, opens the door to bad decisions. Emotional traders may engage in “revenge trading” — trying to earn back their money quickly to make up for a loss. They get frustrated and desperate to change a red day (a day of trading losses) to a green day (a day of trading gains).
That type of thinking leads to miscalculations. “No matter how many years of experience you have, we always have that little devil voice in our ear who is going to tell us the exact wrong information at critical times,” Ross Cameron says in a recent video on the Warrior Trading YouTube channel. “Just after having, for instance, a really big loss.”
That voice might suggest all manner of bad moves, including buying back into a stock the trader just lost on. “That little voice is a very primitive part of our mind. It’s responding to the emotional trigger,” says Ross Cameron. “And now we’re trading from a perspective of desperation, trying to recoup losses, and just complete stubbornness.”
The better path is to manage emotions and learn how to have what Ross Cameron calls successful red days. He says these days are “critical to long-term success as a trader.”
Defining What Makes a Successful Red Day
Ross Cameron is a successful trader, book author (his latest is How to Day Trade: The Plain Truth), and teacher. He is best known for taking a $583.15 account and earning $10 million with it in trades documented on the Warrior Trading site.
He founded Warrior Trading to provide an online home for day traders that offers trading simulators, chatrooms, stock scanners and charts, and breaking news about the market. Ross Cameron shares his trading strategies through Warrior Pro courses offered on the site.
He also talks about his approach to trading on the Warrior Trading YouTube channel. In the recent video about successful red days, he said that understanding the concept of having a good day of losses is key for both new and experienced traders.
Ross Cameron said learning how to have a successful red day “is so fundamental to success as a trader that if you don’t have it, you are almost guaranteed to blow up your account, sooner or later.”
Ross Cameron defines a successful red day as one where a trader loses money but sticks to their trading strategy and ensures they do not exceed the maximum loss limit for the day they set before starting to trade. Staying disciplined about strategy and losses indicates that “you did not go rogue and become emotionally hijacked and end up revenge trading, digging yourself a crazy big hole, spiraling, snowballing, capitulating, and finding yourself at, you know, five or 10 times your max loss,” Ross Cameron said.
Ross Cameron said he wants to explain this concept because he has succumbed to emotional trading in the past, trying to make up for losses. “I have had days where I became completely emotionally hijacked, and I spiraled,” Ross Cameron said. He also warned that, given his experienced, he knows how elusive a successful red day can be.
A Small Red Day Can Lead to a Large Red Day When Traders Get Emotional
In many areas of life, if you want something badly enough, you have a better chance of getting it. But trading stocks is not one of those areas. Wanting the market to change and help turn a red day into a green day is wishful thinking. Ross Cameron, despite all his success, says he has fallen victim to this type of thinking.
In the video, he told a story about talking to a trader recently who was having a red day, but had not reached his maximum loss limit of $1,000. Ross Cameron advised him to walk away and call it a successful red day. However, the trader kept going and eventually lost more than $3,000.
When Ross Cameron asked him why he kept trading, the trader told him he had experienced a streak of “green days” where he made money, and he didn’t want the streak to end. “That’s so classic. I’ll have the same thoughts go through my mind,” said Cameron.
He added that he has gone through long periods of consecutive green days and gets “so stubborn” about keeping the streak alive. This can turn what starts as a small red day into a very big red day. “As I get glued to my computer and refuse to walk away, I start just digging in deeper and deeper and deeper, trading more and more aggressively, doing anything and everything possible to avoid having a red day,” Ross Cameron said.
He shared a story about a recent day when he was down $900 (his maximum loss is set at $5,000). He kept trading, trying to recoup the $900. Soon, he was down $1,500, then $2,700, then $3,700, and then $4,700. As the losses mounted, he kept trading, and ended the day down $9,000, almost double his maximum loss limit.
“I was so upset about being down $900, I let myself lose $9,000 trying to chase after a $900 loss,” Ross Cameron said.
Warrior Trading’s Tips for Having a Successful Red Day
Ross Cameron warns that this type of thinking — chasing losses, trying to maintain green streaks, getting too emotional — is always present to “trap” traders, no matter their years of experience.
The key for traders is finding their triggers. For example, Ross Cameron looked back on his trading and realized he often turned a small red day into a big one if he kept trading after a big loss on his first trade of the day. To combat this behavior, he placed restrictions on how many shares he trades at the start of the day. If he is successful with early trades, he then feels safer buying more shares with each successive trade.
He also stays watchful on green days. He noticed that when got to his goal for the trading day ($5,000), he sometimes would lose back some of his profit. Now, he reduces the share size as he gets close to $5,000 to preserve his profits if trades go badly.
He also has recently limited himself to three losing trades in a row to start the day, with small losses of less than $300. If he reaches that point, he decides to step away for the day.
This process of finding traps and addressing them can help traders have more successful red days. Ross Cameron says identifying emotional triggers is easier if traders keep a journal of every day of trading, both the statistics and the emotions.
This will move traders in the right direction. But they need to realize it’s a continuous process.
“One of the things that I have come to realize is that the emotions that come with trading are not something that will ever entirely go away,” Ross Cameron said. “Even after decades of trading in the market, you will still feel emotion when you have big winners or big losers. And you will still be susceptible to becoming hijacked by those emotions.”
But, he added, “I really think that if you can work on successful red days, you’re going to be better off as a result.”
It’s important to note that Ross Cameron’s experience is not typical. Becoming an experienced trader takes hard work, dedication, and a significant amount of time. Each trader’s results may differ materially due to a number of factors. Available research data suggests that most day traders are not profitable.
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