Last Updated on 17 February, 2024 by Abrahamtolle
Losing is, unfortunately, a natural part of trading, and most of us don’t want to lose.
But sooner or later the inevitable losing streak happens with many losers and your capital suffers. In trading this is called a drawdown.
We have conducted plenty of reader polls, and you find them all in our article about trading statistics and facts.
We asked traders:
How do you handle a losing streak in trading?
This was the result:
How do you handle a losing streak in your trading?
— Quantified Strategies – Only Facts And Statistics (@QuantifiedStrat) January 9, 2024
Most traders (53.3%) stick to the strategy and wait. We think this is a sensible option, but not precisely what we would do ourselves.
What would we do?
We believe, as always, that the best rule is to stick to a quantified rule.
We like to put a cap where the historical biggest drawdown has been, and if that threshold is hit, we lower the size and keep on plugging for 3 months.
Is this an optimal drawdown strategy? Hell no, but only hindsight is optimal in trading. But we believe in rules, so this is a sensible approach in our opinion.
How to handle a losing streak in trading
Losing streaks are a common experience for all traders – good or bad traders alike.
While they can be demotivating, it’s important to remember that they are a natural part of the trading process.
Here are some tips on how to handle a losing streak in trading:
1. Accept that losses are part of trading. Losses are inevitable, even for the best traders. The key is to not let them get to you emotionally (easier said than done, of course, we know).
If you can accept your losses and move on, you’ll be in a better position to bounce back from them.
2. Reduce your risk. When you’re on a losing streak, it’s easy to get “desperate” and increase size to make it back. However, this is a recipe for disaster.
Instead, make sure you had a plan BEFORE the inevitable losses happened. They you know what you are going to do.
As a rule of thumb, we always recommend to trade smaller than you’d like to.
3. Review your strategy. It’s possible that your losing streak is a sign that your trading strategy is not working as well as it could be.
You should always take some time to review your strategy and identify any areas where you can improve, but only as long it’s part of your plan.
4. Seek feedback. Always keep a trading journal, and make sure you have contact with other (profitable) traders.
5. Take a break. If you’re feeling overwhelmed or emotionally drained, it’s important to take a break from trading.
Perhaps even more drastic, if you feel trading is eating into your everyday life, then perhaps trading is not for you.
Random tips for how to handle a losing streak
Below are some completely random tips about how to handle a losing streak in trading:
Don’t revenge trade
This is the urge to make back your losses as quickly as possible. It’s almost always a losing proposition and leads to disaster. Averaging down strategy might be sensible if it’s part of your plan, but not else.
Stick to your trading plan
It’s better with a bad plan than no plan. However, when you are losing money, it’s easy to deviate from your plan. This is a mistake. Stick to your plan and don’t let your emotions get the best of you.
Make sure you have a plan BEFORE you start trading – it’s a natural part of how you handle risk in trading.
It takes time to develop a successful trading strategy, and even longer to become a relatively consistent trader. Trading is about learning, practicing, and improving. It’s all about experience.