In a 07/02/20 video on my YouTube Channel for Longwood Currency Trading — 3 Steps To Successful FOREX Trading — I discussed legendary speculator Jesse Livermore's advice:

"The only way you get a real education in the market is to invest cash, track your trades, and study your mistakes."

In this post, I'd like to go into a little more detail concerning that last activity: "...to study your mistakes."

However, the next candle staggers, and retraces a half an ATR. Nothing of concern until after recovering most of that retracement, the candle drops a full ATR, closing on the low. The next candle opens, and drops another ATR, again closing on the low.

Price is now hovering just above your initial entry point by just a few pips. You clutch the edge of your chair, but the next candle drops like shit through a goose an ATR below your take point. It retraces a little, drops a little more, retraces, and drops until it hangs vibrating on the chart just a few pips above your stop loss point.

It retraces about a half an ATR, and then drops a little.

"And this is where you decide, in your infinite wisdom and command of the universal trading gnomes, to take‐your‐hard‐stop‐‐ off....."

Why not? Man, the price just wants to to up just like your analysis indicated it 'should'. Why leave the stop so close to current price action, and risk getting taken out just before the price rockets back to where it was, well on its way to your profit target?

Why indeed! Surely your analysis will be vindicated if you just give price a little more 'wiggle room'. In fact, upon deep reflection, you convince yourself that initial stop was positioned 'too tight', and it should have been set lower.

With all of this price volatility of almost an ATR every candle, instead of setting a hard stop, you'll just monitor the trade to make sure it has the room it needs to move around before rocketing back toward your profit target, and keep a mental stop point in case things get out of control.

Terrific. I won't go on because you know exactly what's going to happen here, right? Price is going to drop like a stone past the original stop point, past another ATR, and past your 'mental stop' by a margin so great that you do what?

Yes, that's right, you change the chart time frame to the next higher level, see that those indicators should hold price, and thus: you hold on.

And, just like when you were to young to care: you held onto the rim of the bowl throwing your six pack of cheap, but cold, beer up like a fire hose, you hold onto that position as the loss mounts so high that you freeze in disbelief.

Well, until you realize that if you don't force stop out immediately, price will chew another 15% out of your account.

It's been a bad, sad trade — that's fer-sure....

You won't do that again, right? You learned from that mistake: Don't change your stop, and don't hold onto a losing trade.

Really? Is that what you learned from studying that mistake?

Unfortunately: probably.... Look, any dumb ass ‐ dumber than yourself, in fact — is able to see that. And yet, you will still convince yourself that all will be well next time....

Well, Skippy, no, that's not what's going to happen, and you didn't learn shit.

Blunt, but the truth.

And just how do I know this revelation?

Because I did it all the time, multiple times, almost every time price would do something like in the example.

And believe me when I tell you that I knew that my mistake was: Don't change your stop, and don't hold onto a losing trade.

I knew that: all the time, multiple times, almost every time — and yet I did it all the time, multiple times, almost every time, anyway.....

Why?

The assumed answer is that we repeat a mistake because we really didn't understand the mistake well enough.

Really? It's not that simple. I mean, how much more can you dissect that example than: Don't change your stop, and don't hold onto a losing trade?

Well, you can't.

And why is that?

Because: that's‐not‐the‐f'n‐mistake....

Really?

Yeah, really....

And why isn't that the mistake?

Because that's what you did, but it isn't why you did it.

That's the mistake....

If you don't understand why you did something wrong, then how are you ever going to stop making that mistake?

Primary to making a mistake is not acknowledging our fear of an action, but rather focusing on our greed, or on a hope.

The 'what' of the example mistake of 'Don't change your stop' is that there is an inordinately high statistical probability that price will blow through that point if you do.

The 'why' of making that mistake is that your greed, your FOMO — Fear Of Missing Out — of price swinging around and reaching your profit target outweighed your real fear that you would be wrong if your stop got hit.

Yeah. Really....

But aren't the FOMO and a fear that you'd be wrong both fears?

No. FOMO is greed; the other is fear.

But it's deeper than just saying, "Oh, shit.... I guess I just hate to lose so much that I let that block out how badly a position can go against me if I pull my stop."

What causes you not to want to lose so much that it clouds your decision process?

I dunno. Maybe your mother beat you when you were a kid, or the dog peed on your bed. Doesn't matter, but what does matter is that you recognize you have some sort of short circuit in your little cranium that causes you to do stupid shit.

And what specific stupid shit can you identify?

It's that you are willing to pull a stop and risk everything.

Why do you do stupid shit if you know that it's stupid?

Who cares! You do it.

So, now what?

Now, you can fix it because you have identified what's broken.

And what's broken here in this example is that you fail to be able to resist pulling your stop because you're afraid of loss.

As to making personal changes, my martial arts Master, S.A. Brock, taught me way back in the mid 1970s that —

So, how would you alter the way that you think about a situation similar to that example where you have identified that you fail to be able to resist pulling your stop because you're afraid of loss?

Look, it's just really simple — just like the solution to most all problems that not only can be, but are simple to resolve. You don't try to force against the fear, but rather embrace it for what it is, and come up with a different view of the issue.

Whaaaaaaaat?

In this example, which I was prone to in my own trading until I recognized it for what it was, my solution was to look at the gain I would ultimately make by taking a bunch of small losses until I'd probabilistically stumble onto that 1 massive winning trade.

I did the math on it to prove that theoretically it was correct, and what win to loss ratio I'd have to have to compensate for those small losses. And actually, that's where I found what my stop should be.

I'm a scalper, a speculator. Not an 'investor', or even a long term trader. I want to be flat at the end of the day so that something really baaaaaad doesn't happen to me overnight on a carry trade. I discovered through this introspection that an 8 pip hit against my account, regardless of that account size, was more than manageable.

As a result: I had no fear of loss! It was only 8 pips, regardless of if 8 pips was a pizza, or a new car. It was just 8 pips.

And the reason I had no fear of taking a series of 8 pip losses was because I understood that it was highly likely, from a probabilistic stand point, that because of the high frequency of my trading that I could easily hit 6 losing trades in a row within 2 or 3 months of trading 3 days a week.

What this meant for me, again, from a probabilistic stand point, is that my maximum expected losses in a row within any 2 month period of time would be around 50 pips, i.e. actually 48 pips at 8 pips per loss times 6 losses.

On a $1,000 mini account at $1.00 per pip, that's a $50 loss I'd have to take in one bite once every 2 or 3 months. $50 against a $1,000 account is only a 5% draw down. Averaged over that 2 month time period, that's 1 trading day out of the 20 available to me where I'd take a 2.5% hit: $25. If I made just 2 pips profit on average per day for the other 19 days, that would be just under $40.

So, after doing all of those calculations, I no longer had any fear of being wrong. Each loss, even a string of them, couldn't hurt me, so there was nothing to fear. I just thought of the situation in a different way: I altered the way that I thought about the fear.

You can do it too.

In just this way.

It's simple, other than you do have to sit down and find out what personal fear it is that is the 'why' which is causing the 'what' — the mistake itself.

You might need someone to walk you through all of this once to get a real feel for the smoothness of this type of solution process. But after that, you should be all set to do it on your own!

Good luck! And if you have any questions, just send me off an email, and I'll see what I can do to get you started in how to "...alter the way that you think."