Surviving a Losing Streak

[PristineTrading 10]

Every trader at some point in his career will face one or several "losing streaks". This is a fact of this business, and whoever tells you this isn't so has not traded very long or at all. Losing streaks can be produced by the faulty use of a tactic, inefficient analysis of market direction and internals, or other situations. These consecutive losing events can not only produce a drastic drawdown in your account, but even worse, can cause considerable psychological damage that might take a long time to correct. Let's talk about some of these issues and some ways to correct them.

 

The first problem with a losing streak is the fact that it "tends to produce mounting losses". After the trader has finished his paper trading period (Interestingly, losing streaks rarely happen at this stage), the trader will have to deal at some point in his development with the diminishing capital caused by a streak of losses. Depending on whether the trader has established a proper trading plan to deal with his development, this streak will be more or less bearable. Consistency in the application of a plan and a set of tactics takes time, so it's more likely that a trader will have to contend with losing streaks during his development when he is trying to grasp and refine his approach. Thus, a proper money management scheme that looks to protect capital during the developmental stages is paramount. As the trader gains consistency, his plan will protect him from extremely bruising losing streaks, by establishing maximum losses per day or month, and by regulating the steps a trader should take in case he is facing one of these streaks.

 

Even more troublesome to the trader might be the psychological consequences of a bad losing streak. When you face a losing streak, and you lack a proper plan, you might have to deal with 'trader's paralysis". This occurs when you had a severe loss, which produces such a fearful state that makes it impossible in your mind to take a new position. Confidence is lost. To climb back in the saddle, the trader has to create a process to recuperate such confidence step by step. It should begin with a brief paper trading period. Then, when the trader begins to trade real money, it's a very common mistake to try to enter into positions with very small stops. This might be a huge mistake. I believe that in order to regain confidence, the trader should enter into positions with wide enough stops so that the probability of it getting hit short term is very small. He might even consider entering into positions with not so great risk/rewards, just so he'll be able to remain in the position for as long as it takes until it hits the target or stop. This might allow him to regain his confidence that he can hold a position. Small shares during this process is suggested until a regained good win to loss ratio is achieved. Of course, this is only to regain confidence, and afterwards the proper selection of risk-reward plays is still paramount to a trader's success.

 

If you have not taken a trial to our Interactive Live Trading rooms in a while, drop on by to see how you can gain more experience in how you trade and learn from some of the profitable trading idea's we generate daily. Take a free trial or call your Counselor at 1-800-340-6477.

 

Would love to see you drop by with any questions you might have or to just gain some great insights into trading the current market.

 

Jeff Yates

Contributing Editor

Interactive Trading Room Moderator

Gap, Intra-Day and Swing Trading Specialist

Instructor and Traders Coach

pristine.com

[tradingwizzard 10]

IMO this is the hardest part in trading..........like the Phoenix bird, you need to be able to take it from the scratch....over and over again.....

[MightyMouse 11]

Every trader at some point in his career will face one or several "losing streaks". This is a fact of this business, and whoever tells you this isn't so has not traded very long or at all. Losing streaks can be produced by the faulty use of a tactic, inefficient analysis of market direction and internals, or other situations. These consecutive losing events can not only produce a drastic drawdown in your account, but even worse, can cause considerable psychological damage that might take a long time to correct. Let's talk about some of these issues and some ways to correct them.

 

The first problem with a losing streak is the fact that it "tends to produce mounting losses". After the trader has finished his paper trading period (Interestingly, losing streaks rarely happen at this stage), the trader will have to deal at some point in his development with the diminishing capital caused by a streak of losses. Depending on whether the trader has established a proper trading plan to deal with his development, this streak will be more or less bearable. Consistency in the application of a plan and a set of tactics takes time, so it's more likely that a trader will have to contend with losing streaks during his development when he is trying to grasp and refine his approach. Thus, a proper money management scheme that looks to protect capital during the developmental stages is paramount. As the trader gains consistency, his plan will protect him from extremely bruising losing streaks, by establishing maximum losses per day or month, and by regulating the steps a trader should take in case he is facing one of these streaks.

 

Even more troublesome to the trader might be the psychological consequences of a bad losing streak. When you face a losing streak, and you lack a proper plan, you might have to deal with 'trader's paralysis". This occurs when you had a severe loss, which produces such a fearful state that makes it impossible in your mind to take a new position. Confidence is lost. To climb back in the saddle, the trader has to create a process to recuperate such confidence step by step. It should begin with a brief paper trading period. Then, when the trader begins to trade real money, it's a very common mistake to try to enter into positions with very small stops. This might be a huge mistake. I believe that in order to regain confidence, the trader should enter into positions with wide enough stops so that the probability of it getting hit short term is very small. He might even consider entering into positions with not so great risk/rewards, just so he'll be able to remain in the position for as long as it takes until it hits the target or stop. This might allow him to regain his confidence that he can hold a position. Small shares during this process is suggested until a regained good win to loss ratio is achieved. Of course, this is only to regain confidence, and afterwards the proper selection of risk-reward plays is still paramount to a trader's success.

 

If you have not taken a trial to our Interactive Live Trading rooms in a while, drop on by to see how you can gain more experience in how you trade and learn from some of the profitable trading idea's we generate daily. Take a free trial or call your Counselor at 1-800-340-6477.

 

Would love to see you drop by with any questions you might have or to just gain some great insights into trading the current market.

 

Jeff Yates

Contributing Editor

Interactive Trading Room Moderator

Gap, Intra-Day and Swing Trading Specialist

Instructor and Traders Coach

 

A trader who doesn't know how to take money from other traders is in a losing streak the day he starts trading and stays in the losing streak the entire time. Paper trading won't get him out of his losing streak. Pure silliness.

[gianno 10]

A trader who doesn't know how to take money from other traders is in a losing streak the day he starts trading and stays in the losing streak the entire time. Paper trading won't get him out of his losing streak. Pure silliness.

 

I agree more or less with your points.

[sergso 10]

The best way to survive a losing streak is not to have one in the first place.

[MightyMouse 11]

The best way to survive a losing streak is not to have one in the first place.

 

This too is crazy! Please do not make the mistake of taking my comment personally.

 

You will always enter periods where you lose more than you gain. There is nothing you can do to avoid it. It is pure fantasy to think you can. Thinking you can is like thinking that you are only going to have a winning streak when you trade.

 

Instead of paper trading, a trader should make sure he is executing trades and managing risk properly and continue to trade. If the losses are bothering him because the losses are too large, then he should probably stop trading and rethink his risk profile. If he can't handle losing or being wrong, then he is a pussy and shouldn't be trading in the first place.

 

This all assumes that a trader knows how to take money from other traders. If he doesn't, then he should avoid trading real money until he does know how to take money.

[tradingwizzard 10]

This too is crazy! Please do not make the mistake of taking my comment personally.

 

You will always enter periods where you lose more than you gain. There is nothing you can do to avoid it. It is pure fantasy to think you can. Thinking you can is like thinking that you are only going to have a winning streak when you trade.

 

Instead of paper trading, a trader should make sure he is executing trades and managing risk properly and continue to trade. If the losses are bothering him because the losses are too large, then he should probably stop trading and rethink his risk profile. If he can't handle losing or being wrong, then he is a pussy and shouldn't be trading in the first place.

 

This all assumes that a trader knows how to take money from other traders. If he doesn't, then he should avoid trading real money until he does know how to take money.

 

I wouldn't call him a pussy (the trader I mean), but I agree with the overall arguments. Trading without having ups and downs is not trading. There is nobody in this world who is just winning. The key is to constantly be profitable on the long run. You might have a positive month, but that outcome to be formed out of many loosing and winning streaks. Win more than you lose, that is the key.