You’ve had a few bad trading days and now you’re ready to give up. You may have blown up your account one too many times and you’re thinking this isn’t for me. Before closing your accounts and unsubscribing from all your trading software, remember, no trader has become profitable by quitting.
Whether it’s $50 or $5,000, losing money hurts; but that’s an inevitable part of this business. The best traders know how to brush themselves off, get back up and turn their losses into lessons.
Here are some tips to help you change your mindset and recover from a losing streak.
How to think:
Every business goes through cycles where performance fluctuates between highs and lows and sometimes yields negative results. The business of trading is no different; and the more quickly you accept this, the better off you will be in the long run.
Diversification creates peace of mind.
By allowing yourself permission to have losing days and move forward from them, you relieve psychological stress that triggers bad habits, like overtrading, that can turn your worries into a self-fulfilling prophecy. This is easier said than done, especially if your entire portfolio is invested in the markets. That’s why the first thing to consider when bouncing back from a losing streak is diversification of your investments.
By creating multiple streams of income, you can mentally give yourself space to make mistakes, and peace of mind knowing that you have a safety net. Check out our Ebook All Traders Need Multiple Income Streams of Income for more tips on how to build sustainable wealth.
The market will always be there.
Exchanges have been around since at least the 1300s and they aren’t going anywhere anytime soon. You can always trade, even if that means going back to the basics with a paper account.
A losing streak isn’t the end of the world. Even the best traders have them.
One of the best lessons any beginning trader can learn is how to lose gracefully. Be careful about comparing yourself to other traders. Seeing another trader rake in huge wins can be crushing to your confidence while you’re suffering loss after loss. Self-doubt may prevent you from taking smart risks that can help rebuild your account.
A losing streak doesn’t make you a loser.
Don’t take your losses personally. A few bad trading days doesn’t make you a bad trader. You may simply need to get back to the basics and revisit your trading strategy. Take some time to study risk management which will help you manage your capital during a losing streak without sustaining huge losses.
What to do:
Take a break from trading and do something else.
Consider taking just one trade per day until you rebuild your confidence. You may even refrain from trading for a week and go on vacation, giving the markets a chance to shift momentum and your mind space to recalibrate. Once you are fully confident in yourself, your strategy, and your plan, continue with business as usual.
Take an inventory of your losses and celebrate your wins.
Take a serious inventory of your trades and assess why you’re on a losing streak. What is preventing you from being profitable? The answer to that question will differ depending on your situation. Perhaps you’re having a hard time spotting good trades, market behavior is unpredictable, or you simply need to spend more time doing your homework. Take your wins and losses, journal down what went right or what you can improve on and close down everything for the day. Watching securities continue to run after your trade could invite a case of FOMO, putting you right back on the wrong side of your losing streak.
Revisit your trading strategy.
All strategies work, just not all of the time. Use your trading strategy as a guide to get back on track. Assess what’s working and what’s not working honestly and without judgment. Then, make adjustments where needed. While you may need to make small changes to your trading plan to address gaps, your focus should be on mastering your strategy, not creating a new one. By jumping from market to market and system to system, you could end up prolonging your losing streak. Consistency is the key to making it to the other side profitably.
Adopt a learners mindset.
Accept that trading is a lifelong learning process and get back to the basics. Paper trade. Read books. Practice charting. Take a trading class. If you feel jaded about trading, restore your curiosity by soaking up as much information as possible.
Regulate your emotions and mind your mental health.
Trading is an exercise of logic and emotion. Make sure you’re eating, sleeping, and exercising to keep your mind healthy and operating at its full potential. When you trade while tired, hungry or physically exhausted, you spend valuable mental capital that could assist you in your trading.
Find a mentor or a support group, but beware of chatroom trading.
While in the middle of a losing streak, you may feel personally targeted by the market. This is where a community comes in handy. The right community could confirm that the market isn’t attacking your trades since other traders will be echoing the struggles you’re experiencing. A mentor or support group can give you ideas and techniques you may not have been able to discover on your own.
One caveat, beware of chatroom trading. Social media can provide a ton of value or be a pool of bad advice that doesn’t align with your trading style or strategy, creating more confusion.
Journal about your trading goals.
You will want to determine the root cause of your losing streak. Maybe the market is just not producing opportunities that fit your strategy. Maybe your execution is off or you are just not executing enough, missing possible winners when they present themselves. Perhaps you’re psychologically self-sabotaging your profitability.
Journaling can help uncover repetitive habits that are costing you money.
Never, ever give up.
Remember this is a marathon, not a race. The goal is to achieve consistent profitability, not to catch every possible winner or hit a home run on every attempt. Keep a positive attitude, maintain situational awareness and stay consistent.
The bottom line
Even when you’ve done all of your homework and nailed down your trading strategy, all traders inevitably have losses. The best traders practice how to lose because how you handle losses makes the difference. Even if you go bankrupt, you can brush yourself off and get back up. Be humble, learn from your losses and get back out there!