Tuesday, March 08, 2005

The Losing Streak - Lighten Up!

Trading full-time certainly has its ups and downs (pardon the pun). The hours can be great, the pay can be nice, and there is always a challenge if you are up to it. On the flip side, it can be a lonely profession, and there are the losing streaks to contend with. Our egos are often tied to our results, and it is in our best interests financially and emotionally to avoid losses when we can. The tough thing to accept is that losing is part of the game!

Every trader goes through times of success and struggle. Just as the market tends to have a rhythm with the way it moves, so can your results be as a trader. Sometimes, you will see things more clearly and anticipate moves correctly. Other times, it can feel as if the light at the end of the tunnel is still many miles away. Losing is an inevitable part of trading, as I mention in several places on my swing trading website. Ultimately, your success as a trader will be determined by how you are able to deal with losing.

I try my best to keep close tabs on my trading results. It is important to know where I stand, whether for the week, month, or year. This helps me stay aware of my equity curve, whether it is climbing, falling, or just moving sideways. When I trade well, I get more aggressive. When I am losing money and my win/loss ratio slips, I know rather quickly from my results that it is time to make a change.

Once I am faced with a losing streak, whether it is a few days in a row or a couple of weeks, I take a serious look at what needs to change first. Simple mathematics and my experience both tell me that decreasing my size while going through an account drawdown will minimize the severity of it. I typically cut my trading size in half to begin with, which gets me thinking less in terms of total dollars and more in terms of am I right or wrong with this trade. If a trade begins to work and gains momentum, I can always add to it and get more aggressive. However, if I find little follow-through or my trade reverses, I not only give back less open profit, but I am less prone to fall into “hope mode” as is common with positions which are too large for my own good.

The second change I make when my trading mojo disappears is that I take fewer total trades. I become much pickier as to which setups I am willing to trade. I get more disciplined with how the market needs to be acting in order for me to press buttons. Basically, I sit on my hands more. This also helps to curb losses when I am not trading my best, but it does more than that. I monitor my trading results closely, and by just getting more selective with the trades I do take, it helps to eliminate many varieties of trades which may be costing me. By simplifying my approach, I am able to find the light more easily.

Finally, remember that there are more important things in life than trading! Try to get out more often. Catch a movie. Work out. Play golf. Lighten up! This too shall pass!

So, the next time you find yourself in a trading funk, remember to trade smaller and less often. These surprisingly easy adjustments will not only help to soften the blow to your account, but they will help you find your way faster than a stubbornly aggressive approach.

Have a good night!

The Stock Bandit