EC How To Deal With A Losing Streak

While losing one or two trades is normal, losing five or six in a row can completely destabilize your trading. In fact, the most successful traders have more losing trades than winning trades in any given year. The key is to maximize profits on the winning trades and minimize losses on the losing ones.

Jan 2019 Blog #1

Here, I discuss a few tips on coping with losing streaks which I’ve picked up over the years from some of the best in the business:

  • Keep a Detailed Trading Diary and Understand Trading Statistics

Traders need to understand their win rate. If you tend to win 50% of your trades, that doesn’t mean that your strategy will have winners and losses alternately, i.e. a win followed by a loss and then a win again. A good trading diary allows you to track your trades and find the common thread among your losers and winners. This makes it easier for you to make the proper adjustments.

A 50%-win rate over many trades could take the form of seven consecutive losses and seven consecutive wins. If you make more on winners than you lose on losers, you still have a profitable 50%-win-rate system.    

This example, however, is likely to cause a trader to abandon their trading plan. It shows a longer losing streak and a longer drawdown period, but also a longer upswing period. Would it matter if the seven wins came before the seven losses? You might feel invincible after the consecutive seven wins, but it really shouldn’t matter. The probabilities are still the same, the only difference is in the mind. 

Having a system that results in 10 losses in a row and then 10 wins in a row may not necessarily be a good thing. A few consecutive losses often aren’t a big deal, as they can still be part of the bigger (winning) picture. That said, I’ve seen veteran traders who’ve experienced a losing streak of 30 losses before winning and are still profitable at the end of the year. 

It’s usually better to stick to a well-established and tested plan through a losing streak, rather than trying to fix it. Of course, make sure the conditions are favorable to the strategy that you’re using. Knowing when not to trade is even more important than knowing when to trade.

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Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. ...

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