There's nothing worse in trading than hitting a trading drawdown.
Especially a long losing streak.
It can mess with your head, steal your confidence and cause you to take revenge trades. You may question if you are really cut out to do this trading thing.
So what can you do about it?
In this article, I'll show you five proven ways to stop your losing streak and get yourself back in the game.
There's no guarantee that you will be able to make all your money back.
But if you follow these strategies, you will put yourself in the best possible mindset to do so.
1. Stop Trading
This may seem obvious, but in the heat of the moment, it can be really hard to do. People who have a tendency to revenge trade will want to make back their losses right away.
That can lead to a downward spiral that usually ends in a blown account.
The markets will still be there tomorrow, and next year, and the year after that.
But again, this is easier said than done. So here are a few exercises that can help ensure that you actually do this.
Visualize What You Will Do Ahead of Time
If you know that you are someone who might start revenge trading, then you need to be prepared. When the markets are closed, take some time to imagine yourself in a really bad losing streak.
Then visualize yourself taking a deep breath, putting in your stop losses or closing trades, putting the mouse down, turning off your trading platform…
…and walking away.
Also imagine how much better you will feel after doing this.
You shouldn't do this visualization too frequently, because you will be telling your subconscious that you are a trader that often has bad losing streaks.
But you do need to know how to handle the situation when it arises. So start by doing this once a month and adjust it as necessary.
Create a Positive Mental Trigger
One thing that can help with breaking yourself out of a revenge trade situation is the use of a trigger. There are negative emotional triggers that make people eat too much, smoke or drink excessively.
But there are also positive emotional triggers.
So let's leverage them to get you to stop trading during a losing streak. Since this will vary from person to person, I can't tell you what a good emotional trigger is for you.
But think about things that make you happy or goals that you want to achieve. Then find a way to put that in front of you, when you are trading.
This could be a picture of a loved one, a quote, or a souvenir that you got on a trip. Make sure that it triggers a very strong positive emotion for you.
Whenever you are tempted to start trading recklessly look at this positive trigger and remember that trading badly will not help you reach your goals.
This may not work for everyone, but try it out and see what works best for you.
Be aware that the negative emotions from your trading can also be transferred to your positive trigger, in turn, making your positive trigger negative. So be very aware of how your positive trigger is working and if it doesn't work within the first couple of tries, then stop using it.
Your feelings towards your positive trigger should stay positive. 🙂
Take a Vacation (Seriously)
When you stop trading, you give yourself the space to think clearly again. If you are in a really bad funk, consider closing all of your positions and taking a vacation.
A proper vacation.
Do something that you have never done before. That will make it easier to take your mind off trading.
If you can cross something off your Heroic List, even better!
2. Journal Your Trades
After you have stopped trading, take a look at your trading journal and see if it is up to date. If it isn't, then this is the perfect time to update it.
Use whatever works best for you.
Now review all of your trades in your current trading drawdown. How do they compare to a period in your trading when you were doing well?
Once you take some time to look at your trading objectively, I think that the reasons for your losing streak will be clear.
Note: If you find that you are doing the exact same thing in your current losing streak that you do in your winning streaks, then you should skip to #5 below.
3. Reduce Your Position Size
If you are in a losing streak, but you haven't hit your risk limits yet, then you may consider just reducing your position size.
So instead of risking 2% on each trade, you might want to pull back to 1% or even 0.5%.
This can help you weather the storm and get back on the right track.
The natural human reaction is to trade bigger positions to make the money back. But that is exactly the wrong thing to do.
So fight your natural reaction and do the right thing.
Like I mentioned above, the best solution might be to stop altogether. But if you are not under external emotional stress and you are following your trading system, then you might just need to scale back a little.
4. Phone a Friend
Sometimes, you just need to get out of your own head and talk to someone.
Talking to a good friend or family member who understands trading can help a lot to calm you down and give you the confidence to keep going.
Remember that talking to that friend who thinks that trading is dangerous is not going to help. This will only make things worse.
If you don't know anyone like that, then jumping on social media can help. Ask other traders how they deal with a losing streak. Here's a good place to start on Twitter.
Writing down your thoughts in a notebook can also help you understand what you are feeling and how to proceed. It might sound a little weird to do this, but give it a try anyway.
There might be other reasons that you are not trading well. Stressful situations outside of trading are often the culprit.
5. Keep Trading
The previous four solutions have all been about scaling back and doing less trading.
But you have to consider that your drawdown might also be normal and the only way to get out of it, is to…continue trading normally.
If you have backtested your system, then you will understand how it should work in different market conditions. You will know how long of a drawdown to expect.
You don't know how long of a losing streak to expect?
Well, then you better stop trading and get to testing.
Once you understand that your losing streak is just a normal part of your trading method, then you can proceed with a healthy dose of confidence.
If you have tested your system and your current trading drawdown is much longer than what you have seen historically, then you need to stop and figure out if something about the market has fundamentally changed. Your current trading method may need to be tweaked, put on pause, or it may have stopped working altogether.
Only testing can tell you that.
Final Thoughts on Stopping a Trading Drawdown
Being on a big trading drawdown can be really stressful. But if you follow the strategies above, you will give yourself the best shot at stopping your losing streak and getting back on track.
Remember that losing is a normal part of trading. You just have to figure out if your current losses are normal for you and your trading method.
So if you are in a losing streak right now, pick up your skirt, face the situation and figure out a way to get out of it.
It won't go away by itself.
What do you do when you are on a bad losing streak? I would love to hear about it in the comments below…