Breaking the Losing Streak – This is the elephant in the trading room. It is rarely mentioned, almost everyone thinks or hopes it won’t happen to them, but all traders will have to face it at some point. Even high winning rate systems (70% win rate) will hit ten (or more) consecutive losses sooner or later.
It’s a mathematical fact that can’t be argued with.
I believe the losing streak is like an exam every trader has to pass in order to remain in this
business. But unlike an exam, you’re never told the date or how long it will take. When you’re in the middle of a losing streak, you think it’s never going to end; it clouds your judgement and erodes your confidence. You might even start looking at the market as your personal nemesis and believe that ‘they’ (brokers, banks, other traders) are out to get you.
So how do you best handle a losing streak ? There are two main steps in my opinion:
1. Stopping the Losses
You do this by first reducing your trading size, taking smaller positions. In this way, you’ll be trading your smallest position size when the trading is worst.
Secondly, stop trading altogether when you reach a certain predetermined loss limit in a day, week or month. To quote the great Paul Tudor Jones, “I want to make sure that I never have a double digit loss in any month.”