Losing streaks suck. There’s no denying it. And if you are a trader there’s no escaping it.
Even if you’re trading a winning method that works for you (which I’m sure you are) you WILL hit a patch of losers eventually.
Sometimes the streak will be a short one (2-4 losing trades in a row), other times the streak will be longer (6-8 losing trades in a row) — the length doesn’t matter.
What matters is how you manage yourself during the losing streak — that’s what determines how well you will come out on the other end.
In light of my current losing streak (3 trades long) I thought I would put together this newbie guide to losing streaks, things to watch out for, and mindsets that will help you conquer this beast when it rears it’s ugly head.
So here you are, 10 things I think you should know and realize about your current (or next) losing streak.
1. It’s Not Your Fault
The first thing you need to understand is that losing streaks are perfectly natural. As Mark Douglas says, the distribution of returns for any edge is random. Meaning, you cannot predict where your wins and losses are going to come.
And because you can’t predict where your wins and losses are going to fall you have to keep taking trades.
The current method I’m trading has losing streaks that are usually in the 3-5 trade range but can go as long as 7-8 trades. And in the long run it still makes money.
The size of the winners compared to the size of the losers. And when I’m losing, I keep taking trades.
2. The Flip Side of Losing Streaks Are Winning Streaks
I know it’s nearly impossible to remember while you’re in the middle of a losing streak, but the flip side of losing streaks are wining streaks, and they come around just as often. And guess what — they are equally meaningless. LOL.
I know they feel a lot better — but they are just as random.
But, to get to the winning streaks, you first have to trade through the losing streaks.
Do this long enough and you will find that neither winning streaks or losing streaks matter as much as win/loss ratio, win % and average gain.
3. Keep Trading
To get to your winning streaks, you have to trade through the losing streaks. A lot of traders will abandon a system or method when it hits a losing streak, only to start trading another method just as it is entering a losing streak. That’s a great way to lose all of your capital.
4. Remind Yourself Why you Are Trading That Method
During a losing streak I will take time to go over the numbers of the method I’m trading — go back over my trading history, test out small ways to improve my method and look at price charts of wining and losing trades.
This reassures me of why I am trading this method to begin with — because it has been time tested over a much greater sample size that the few losing trades I am currently in.
5. Do Not Try To Anger Trade Your Way Out Of It
Do not, under any circumstances, get pissed and try and anger trade your way out of a losing streak — you will only find yourself deeper inside it — and yourself.
If you are in a losing streak, and feeling crappy about it — admit that. Go with that. Stay calm, keep taking your system trades, and move on.
So what exactly is anger trading? More often than not it’s EMOTIONAL trading.
Things like doubling up on losing positions. Taking risky positions in risky stocks. Taking trades you normally would never look at. All because you’re dying to get even.
6. Read a Good Trading Book
During losing streaks I like to reread Trading in the Zone by Mark Douglas. Trading in the Zone is all about understanding how your own psychology impacts your trades.
It discusses how skewed your market perception can become when you layer your own expectations and emotions over it.
Other favorite trading books?
- Trend Following by Michael Covel
- How I Made $2,000,000 in the Stock Market by Nicolas Darvas
- How to Make Money in Stocks by William Oneil
7. Go Work Out
Watching the screen all day is not going to make your trades magically turn around. They are doing what they are doing and your edge is playing itself out.
There is nothing you can do about that.
So get away from the screen. Go for a run. Go lift some weights. Breathe. You are much, much more than your trading account balance or your current system performance.
8. Check Out Pro Trader Performances
A lot of people have made a lot of money in the market and they didn’t make it by never losing. So check out their performances for yourselves.
They have up years and they have down years — but they keep trading through it all and they keep managing their edge.
Here is a list of pro trading funds — trend followers who manage billions and who have made a lot of money.
Notice how some of them are up this year while others are in drawdowns as much as -27% of total equity.
Ask yourself, could you still take the next trade if your equity was down -27%? Most traders couldn’t. I, myself, have had to trade through 3 such drawdowns. Trust me, it isn’t easy.
9. Understand That Results Take Place Over Time
The profitability of your method can only be determined over time — over hundreds of trades — in all kinds of markets. One of the biggest things you need to understand during any losing streak is that these 5,6,8 or even 10 trades are nothing over the long run.
For instance, my current trading history is over 300 trades long. 10 trades is only 3% of that number.
10. Know Your Place On The Learning Curve
Understand that, no matter how good your method or how good the market is, you may still have some learning to do. Trading is not easy and learning how to trade takes place over time and it will cost money.
Sometimes it costs a lot of money to learn how to trade, sometimes it costs a lot of time, sometimes it costs both time and money.
So be good to yourself during this process. understand that losing streaks are natural. It doesn’t mean that you are a bad trader or that the method you are trading sucks.
Just keep doing what you are doing and over time the results will give you a clearer picture of what’s going on.
Until next time…