Updated from its original posting on 20-05-2011
Losing streaks aren’t uncommon in the trading world. Every trader at one point or another hits a losing streak. Trust me, even the most consistently profitable pros have their slumps.
A slump can start with anything. It can begin with one huge loss that wipes out all your profits up to that point, or it can be a series of small trades. The common theme is that, not only does to it put your account in the red, but it can have damaging effects on your trading psyche. It can even cause you to lose your trading mojo. *cue the Austin Powers soundtrack*
Once a trader hits a losing streak, there are some cases where pride gets in the way and he/she will do anything to recoup the losses. This can lead to revenge trading, insisting that he/she is correct and that the market is wrong. For others, this leads to “betting-the-farm” trades, trying to win everything back with a homerun trade.
More often than not, this can lead to disastrous results, such as the trading account hitting the dreaded zero mark.
So what should you do to regain your trading motivation?
The first step is to look into the finer details of your trading and keep in mind the bigger picture: Are you trading the right way?
Go back through your trading journal and look at your past trades. Ask yourself these questions:
• Is there something that I changed or am doing differently from my usual trading plan?
• Am I following through with my trading plan?
• What am I doing wrong?
• Am I missing anything?
By going through this process, it helps you know whether you are behind on your deliberate practice and sets you on the right path to getting back into the groove. Trading psychologist Brett Steenbarger suggests taking a closer look at the following:
1. Trade breakdown
Take a look at all the trades you’ve taken to see which setups are winning and which aren’t. That’s right, ALL your trades. Yes, I know, it takes a lot of time to go through your entire trading journal just to figure out which trades have been working for you and which haven’t. But hey, a few hours is a small price to pay to get your trading mojo back, right?
As you review your past trades, break the data down into trade sessions, currency pairs, long or short position, trade strategies, etc. This will help you identify winning patterns that you don’t usually recognize while trading.
2. Stops and targets
Review the trades you ended up losing because you either set your stop too tight or your profit target too far.
Did you take current market volatility into account? Bear in mind that some pairs, such as GBP/USD, are prone to wider swings. Were you able to consider the particular pair’s volatility as well?
If you answered “no” to any of those questions, you, my dear friend, have some adjustments to make! Just remember that if you are expecting more than the usual amount of volatility from the markets or the currency pair that you’re trading, make sure you set your stop a tad wider. On the other hand, if volatility is toned down and the markets are moving sideways, don’t be too ambitious with your profit targets.
3. Trade size
If you’re in a losing streak, consider reducing your trade size and risking less until you get back in the groove. Stop fretting over your P/L for a bit and focus on getting a better feel of the market and regaining your trading consistency. Once you’ve got that down pat, you can gradually start increasing your trade size again.
“Okay, I’ve identified which trade strategies that usually work and the adjustments that I need to make. Now what?”
Well, what are you waiting for? Use those strategies and make those adjustments, of course! The sooner you get back in sync with the markets, the better. If you’ve put in enough effort to review your journal, make the necessary adjustments, and stick you the setups that work, your account will thank you for it.
But remember to keep your position size small as you regain confidence and rebuild your account. While there’s no guarantee that your trades will turn out to be winners, at least you are in control of how much you risk per trade. Take note that the goal is to “cure trauma through repeated experiences of control and safety,” as Brett Steenbarger put it. Now go ahead and get your trading mojo back!