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Trader Q&A: Do You Grow More From Your Winning or Losing Trades?

Schwab trading specialists discuss both winning and losing trades and how they reconcile the outcome.

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Lou Mercer:  All right. Let's take a question. Jim from Tennessee, do you find that you grow more as a trader from studying your winning trades or your losing trades?

Kevin Horner:  For me, that's an easy one.

Julie Strippoli: Yeah.

Kevin Horner:  It's the losing trades. Nothing impacts my mental wellbeing as much as a bad trade, and I'll tell you, I never like to get that feeling again. So in my mind, when I feel that awfulness, hey, I really messed this one up, that's the thing that I take away. That's the one that sticks with me longer.

And I think if you ask a lot of traders, I think a lot of traders will tell you something similar, that it's difficult to recall their absolute best trades. But we have a series of difficult trades that didn't go the way we wanted, and those are the lessons. And I think that's the big key, is there's no mistake as long as you learn something from a bad trade. You know?

Lou Mercer:  And it's not sexy, but really, it goes back to have that trade plan. Right?

Kevin Horner: Yeah. Always.

Lou Mercer:  Have that trade plan. All right. Brook from California, if I want to start using a trade plan, where or how do I get started?

Kevin Horner:  Well, we make this one available right on for you. As a matter of fact, in our learning center, it's one of the strategy paths, or it's an available article in the strategy path of the learning center. So you can start there to use it, manage it, go from there.

But another thing to keep in mind is that while the worksheet may be ideal for some of us, the notes functionality in StreetSmart Edge I use constantly, and essentially, I'm treating that as my trade plan.

Lou Mercer:  So what are the important things to write down in the notes section?

Kevin Horner:  Entry, exit, my stop levels, percentage of overall trade, where I'm – the various price levels at which I might want to scale. In my case, I like to note those levels in the notes, and I only assign downside orders, so protective orders to the downside, but not target exits. That's because I like to take advantage of opportunity when it appears, as opposed to allowing something to happen when I'm maybe not paying as close attention.

Lou Mercer:  And Julie, can you talk to us about a trade plan? How would you go about working with an investor on creating – I'm sorry, a financial plan?

Julie Strippoli:  Well, I want to go to the trade plan first, because I think that a lot of times clients that I work with who are doing trading on the side of the core portfolios will get into positions without a real good idea as to what it is that they want to get out of it.

And to the point of analyzing your losing trades versus your winning trades, I mean, analyzing your losing trades certainly makes me cry more as a trader, but the winning trades need to be analyzed, too. I mean, so many times I've taken a profit only to see the stock continue to rise, right? So –

Kevin Horner: That's totally valid.

Julie Strippoli: So being able to understand exactly how you're going to manage that downside as you move up is important.

Lou Mercer: Yeah, and sometimes people are worried that they're going to sell and it's going to keep going up, so they hang on, and that's where sometimes people talk about scaling out. Okay? Sell a portion of your position. It goes up, sell a portion more. If it crashes, at least you got out with some.

Julie Strippoli: Yeah.

Kevin Horner:  Absolutely.

Lou Mercer: Do you work with people on creating that investment plan? We believe that everything starts with having a plan itself. How would – how would someone go about creating a financial plan?

Julie Strippoli:  Well, at Schwab, we do it with clients in the branch all the time as part of the discovery process. So financial planning is a huge part of how we build relationships with clients and see them reach success in achieving their goals. So it's kind of just an inquiry, you know. There's a lot of data and information that we'll put together, and have a conversation with them about what is it that you want to achieve? You know, what's your timeframe? And how are we going to get there?

And that actually, for the core portfolio, helps drive what we're going to do in terms of overall allocation. How much risk do you need to take versus how much you want to take? And do we really need to go there in order to achieve your goal?

Lou Mercer:  Yeah, they talk about how when someone's not diversified, that's a great way to build wealth, but when you get at the phase of your life where your wealth's already been created, diversification is a great way to keep it.

Julie Strippoli:  Mm-hmm.

Kevin Horner:  Absolutely.

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