Second Drawdown Recovery · Legacy Profits Club

2d ago in #Wins

Second Drawdown Recovery

[12/24/2024] Just before Thanksgiving, I had a massive red day losing over 37% of my account. Today, on Christmas Eve 2024, I've officially recovered from my second drawdown.

My first drawdown took me 36 trading days to recover. The second drawdown was 4x larger and took me just over half the time (19 trading days) to recover. Progress!

Here's what worked for me - spoiler alert it was 98% mental:

MISSION - know yours. I started with an exceptionally small account ($200) and my future dreams were tripping up my current situation. If you're starting out small (or in simulation), remind yourself that your priority now is to gain market experience, build a scalable strategy, and develop your own edge. Don't put the cart in front of the horse. Write down your long term goal(s), then break them down into short term goals that aim to get you there. Refine your goals as necessary, and check in frequently to determine if you're on track or need to adjust. Humble yourself and start as basic as your situation and background requires.
SELF-CARE: I CAN'T EMPHASIZE ENOUGH HOW IMPORTANT IT IS TO BE KIND TO YOURSELF. You need to do honest self-analysis of what lead to the loss/drawdown (to identify actionable adjustments). We're all human; we all make mistakes - sometimes repeatedly. In the face of defeat, it's important to also recognize your wins and find a silver lining - somewhere, ANYWHERE. There's always something to build on. You can't build confidence if you're constantly tearing yourself down. Be realistic (see MISSION), but cut yourself some slack, will ya?
DISCIPLINE AND RESOLVE: Be patient and wait for quality A or A+ setups - write down your criteria and stick to them. Don't chase something out of your wheelhouse, or it will be harder to consistently identify variables that lead to a trade's success or failure. You start at zero. Treat every trade like it's your first and only trade of the day. For God's sake, go for base hits. Swinging for the fences may work once or twice, but you'll lose more often than you win in the long run. If you can consistently get BASE HITS, you'll find that sometimes those base hits really connect actually turn into home runs. Don't try to make up for a big loss with a couple trades. Take days, weeks, months to grind back out and use it as reminder that it's easier to be disciplined on cutting losers than to grind back from deep red. Starting out, stick to one (maybe two) high quality setups (as a beginner, or when learning a new strategy, stick to the higher probability setups - "Thinking in Bets" by Annie Duke). Don't be afraid to go back to the simulator or SIGNFICANTLY reduce share size and trade volume if you need to refine your process.
RISK MANAGEMENT: Your capital is your army of $. It takes money to make money. Don't send your troops into a high risk/low reward situations. Set "Kill Criteria" (from "Quit" by Annie Duke) to establish hard boundaries for when your trading day is over - and stick to them! Know your exit (stop loss) and profit target before you enter any trade.
ROUTINE: Set up a pre-trade checklist and run through it every day BEFORE you start trading (late adoption). Review trades every evening with a fresh mind to analyze what went wrong, what went right.
JOURNAL: This arguably goes under routine, but it's important enough to stand on its own. Journal every trade. Review your journal every day. Don't just journal what went wrong. Also look for the easiest trade of the day (even if you didn't take it) to identify what made that one good/easy (thanks, Derek!). Look for trends to help you identify variables to improve your edge: certain price range? certain % gain? volume/relative volume? news? float? other technicals or fundamentals? certain times of day? physical/emotional condition (look up IMSAFE)? You're not just looking for patterns on the chart - you're looking for physical, emotional, and logistical patterns as well to find your sweet spot.

If anyone has anything else to add, feel free to drop a comment! 😬

Hope everyone has a Merry Christmas, Happy New Year, and Blue Skies for 2025! ✌️

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