Kill Your Losing Streaks
Imagine a small losing streak of just 5 trades risking 3% on each; it would cost you a massive 13% of your account. Think about that for a second, 13% of your account wiped out by just a handful of bad trades...... if you're a trader the very thought of that should send shivers down your spine.
So, if you have a bad run you could easily end up decimating your account, after just a few trades.
Let's also remember math is pretty logical but we as human beings are pretty emotional. With math we can say that each trade had a risk of 3%. In real life though, most newbie's after a few losses would make the mistake of trading out of anger. 3% risk becomes 5% and before they know it what started off as a little losing streak becomes a margin call.
There Is a Way Round Losing Streaks
It is just so simple, if you lose 3 trades in a row close down your platform and take a few days off trading. This allows you to:
1. Kill the Losing Streak - Losing streaks always start off small, you may make a little mistake in your analysis, which leads to a bad trade. Maybe out of anger, you take another bad trade and from there on out the losing streak takes on a life of its own. Instead of letting a pebble become a boulder, it's best to cut losing streaks short. If you make a conscious decision to shut down the charts you will cut off all chances of trading out of anger, and making costly mistakes.
2. Take a Break and Clear Your Head - I believe most losing streaks are caused by chart overload. After a few months of constantly staring at charts you could start to lose it. So instead of making mistakes take a short break and come back to your charts with a refreshed mind.
3. Preserve Your Capital - Do I need to explain this one? It stops you from losing your hard earned money by taking dumb revenge trades and making stupid mistakes.
How This Rule Has Helped Me
When I was a newbie I blew two accounts due to losing streaks. On my third (and final, if I blew it) account I started using this rule and my account just kept on growing. There have been several times over the past few years where I lost three trades in a row and took a few days off. Any one of those times, if I had kept pushing it I could have thrown it all away.
If it wasn't due to stringently following this rule I would not be a trader today. I would have squandered away my capital and right now I would be a 9am to 5pm pen salesman.
This is something you should seriously consider adopting into your trading.
Are You Going To Use This Rule?
Are you going to use this rule in your trading? Leave a comment and discuss it, I would like to see what everybody thinks about this.
Related Posts:
- Dangers of Winning Streaks 13:51 10 January 2009
- My Trading Alter-Ego Made Me a Profitable Trader 11:57 23 October 2008
- 4 Psychological Pitfalls That Will Blow Your Account 20:07 04 November 2008
- 12 Essential Trading Tips to Make You a Pro Trader 21:30 12 October 2008
- Adapting to Market Conditions: Master Candles 16:54 15 December 2008
Archived Comments (9)
Forex Blog: Art of the Chart
Unfortunately, like you, I found out these rules the hard way and lost a few hundred bucks when I started. Another great article. :)
Hi NickB, great article. Again it's like you know me man or maybe I made all the mystakes a rookie could. The good thing is I'm now aware of those bad habits and with you and other people sharing how lived and passed through this situations I've learned a lot. Thank you very much. God bless you all.
HI NickB,
Yes, that is the exact thing I do.I am a newbie to forex.However I did commit those same mistakes when I traded stock futures and options. I am so lucky to have people like you helping the newbies make them understand where there could be potential dangers.It is truly a remarkable selfless gesture to help others by blogging every trade you take and help others understand how to stay disciplined and to stick to the system.I really appreciate that.
Yeah, this is a good plan. I've been trading for about a year, and I lost money in the beginning by losing a couple of trades then losing my cool. After blowing a couple of accounts I was forced to take a break, and I found whenever I came back with a cool head I was a much better trader. Now I follow your rule - I hadn't really formalised it into strike 3, take a break - but now I think I will. Thanks Nick.
I am a definate newby, I am still trying to develop my trading system and plan. I have made a list of my trading rules to which I want to incorporate in my set of guidelines and this will deffinately be added to the list. Thank you!!!!!!!!!!
Yes I have been trading for about 6 months and have learnt this the hard way. VERY GOOD ADVISE! I found this also applies to me after making a good trade and the invincible ego takes over and one thinks he has a prophetic gift.... not the case as it turns out... shutting down and enjoying the good trade for what it was has served me well.
Darn good suggestion. I was up 20% in about an hour last week... I wanted (I got greedy) just a few more pips to even out my earnings... well, I made a bad call, then another... not only did I lose the 20% I had earned, I lost another 25% on top of that!
Might I also throw in... look only for high quality trades. Sometimes a big part of trading is waiting.
May the pips be shining for you
Thank you Nick B. Very good suggestion. I've been really hurt by this in the past.Very difficult to see the pips leaving you behind as a Newbie.However we all have to learn patience, and most of all we need to approach trading with a disciplined approach.
BEWARE OF GREED!
I wish you all good pipping
******FULL PIPS AHEAD*********
Thank you Nick B. Very good suggestion. I've been really hurt by this in the past.Very difficult to see the pips leaving you behind as a Newbie.However we all have to learn patience, and most of all we need to approach trading with a disciplined approach.
BEWARE OF GREED!
I wish you all good pipping
******FULL PIPS AHEAD*********