Almost every day I get asked what to do when a trader is in a losing streak and how to recover from it. I want to use this article to provide actionable advice and share my best tips on how to deal with adversity and how to manage yourself and your trading when you repeatedly lose trades.
Step 1: Are you really in a losing streak?
The first step is critical and in most cases, the traders are not really in an actual losing streak and the problem goes much deeper.
A losing streak only exists when you 100% religiously follow your rules, adhere to the trading plan and do everything correctly and then still end up with multiple losses. If, on the other hand, you break your rules, you don’t follow a plan and you are all over the place and then you lose, we can’t call this a losing streak. In this case, the trader deserves the outcome because he is sloppy and undisciplined.
Thus, we need to first establish whether we are actually dealing with a losing streak or if the trader is just not acting professionally and does not have a strategy.
Step 2: How to proceed?
If you recognize that you are lacking rules and you don’t have a structured approach, you need to establish one. A professional trading approach has different layers and the graphic below shows that. For each of the different layers, you must create rules and principles.
Trading is more than looking for entries and trying new indicators and you must establish rules that you can follow if you want to trade like a professional. Rules will make sure that your trading has more consistency and only if your trades and your approach is consistent, then you can interpret your results and find out where the problems are. If you don’t have a detailed strategy, all your trades will look differently and analyzing your results will not provide any meaningful information.
If you want consistent results, start with a consistent approach first. Most traders do it the opposite way and wonder why the results are not what they want them to be. Think differently and don’t follow the herd.
If you don’t know where to start, take a look at our premium trading courses and mentoring where you get exact rules and principles for each part of our trading strategies and the approach. No more guesswork and you will finally be able to have a structured approach to professional trading.
Step 3: Judging the losing streak correctly
Once we have established that we are dealing with an actual losing streak, we have to put it into perspective and see it in the greater context so that we don’t freak out and stay calm.
Losing 3, 4, 5 or even 6 trades in a row might feel frustrating and it can certainly weigh heavily on one’s emotions, but is it really such a big issue? Even if you take 6 full losses, just 2 winners will often be enough to recover from it and get back to positive territory.
Thus, don’t lose your head and if you feel that you get emotional, remove yourself from the screen for a day or two to get a new perspective. After a short break, things will look very different and a trader can recognize that it isn’t such a big deal after all.
Step 4: Do you need to win right now?
This might sound strange but it’s a very important point. If you are new to trading, do not worry too much about how much money you can make or how much you should be making.
Especially during your first 12 – 18 months, your focus should not be on your trading performance and on your overall return, but you must work on yourself.
“Don’t try to run before you can walk.”
Trading is a new skill and you have to learn everything that goes with it. Whenever we start something new, we would not expect to be an expert after a few weeks. In trading, we like to forget this general premise easily because trading looks so simple and you see the unlimited potential on your charts right in front of you.
Take the foot off the pedal and understand that you are at the very beginning. Focus on yourself, on building a structured approach, finding yourself as a trader and do not direct all your energy towards winning. You won’t win for the first year or two and it will only prolong your journey unnecessarily.
Step 5: Learning from adversity
Often, losing streaks can also offer great insights into one’s trading approach. Look for similarities between your current losses and previous periods where things went well.
Below, I added two screenshots of recent conversations in our student forum and when working with our traders, the biggest revelations happen, when I point traders towards their negative patterns. Often, traders don’t see the problems in front of them because they are struggling with their emotions. I pointed out to the first trader that he was forcing too many trades and that the trades he took were sub-optimal which he did not realize during his trading because he was too caught up trying to win. After I reviewed his traders, I pointed my finding out to him and he saw that it was quite obvious.
The second trader had similar struggles and taking sub-optimal trades is mostly an emotional problem where traders want to trade more frequent. The trades feel “almost” right but traders know that they should not be in them if you ask them later when they can look at their trades more objective. I suggested using the checklist we provide to our students because it adds a layer of protection and objectivity.
Once a trader has an approach with clear rules, it is very rare that such traders do everything completely wrong and once you can identify your one or two biggest struggles, your whole trading will transform. Raising awareness is a big step and once a trader has such an aha-moment, often times the trader will be able to use such a period of adversity to come out as a better trader.
9 tips for dealing with losing streaks
Finally, I want to provide a few more thoughts, ideas, and tips about the questions you should ask yourself during a losing streak and what to pay attention to:
Ask yourself: Did I do everything correct and did I follow my rules 100% and the trade just didn’t work out, or was it me that caused the loss?
You can’t call it a losing streak if you are not completely disciplined and break your rules all the time!
- You must establish clear rules for every aspect of your trading to achieve consistency.
- Do you take the best trades only or do you take a lot of trades that are not optimal? When struggling, a trader should become more selective in his trading and only take the best trades to reduce noise.
- Do you take a lot of correlated trades? For example, if you trade both the AUD/USD and NZD/USD and experience two losses simultaneously, you are increasing your risk with correlated markets. A trader should be aware of that so that he can deal with correlations consciously.
- Look for similarities in your losing trades. What is the common theme here and what are the biggest issues that cost you the most?
- A checklist can be of great help. It adds objectivity and it can also highlight mistakes before a trader makes them.
- Do not try to make up for a loss by increasing the risk. Stay calm and protect your mental capital. Don’t dig yourself an even deeper hole.
- 4, 5 or 6 losing trades is not a big deal. 2 winning trades are often enough to recover from such a streak. Don’t lose perspective.
- Seek guidance. If you trade on your own, many traders easily feel lost. Think about joining a community of traders who trade the same strategy as yours. You will get support and you can share your experience with like-minded people. Trading can be boring and lonely at times. You should find a way to hold yourself accountable.
But beware, the community MUST consist of traders who have the same approach or otherwise, you are dealing with a lot of noise.
- If things become worse, take a break for a day or two. You will realize that it’s not that big of a deal if you gain perspective. Traders who try to force a winning trade after a losing streak make things worse. The last thing you want is that one regular losing trade sets off a downward spiral and you realize too late what you did by entering the tilt-mode.
What is your current struggle and what has helped you in the past? I’d love to hear in the comments below from you and your experiences.
Finally, I also just recorded a personal message with my current story of dealing with adversity and what traders can learn from it.