Guest Blog post by Vlad Gubernat
Vlad Gubernat is a full-time trader based in Romania who shares his thoughts on his blog JLTrader.
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:
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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.”
2. Maintaining a Positive Attitude about Trading
You do this by taking a step back and putting the current period in perspective. First of all, you are not alone in this. All great traders have gone through losing streaks. (Re)reading about them in classic books like Market Wizards should be a big help in lifting your morale.
Secondly, one should never forget that the market is totally impersonal; it doesn’t know or care whether you make money or not. Getting angry or resentful at the market when you’re losing doesn’t get you anywhere.
To conclude, losing streaks are an unfortunate reality of trading. Brushing the subject aside won’t stop it from rearing its ugly head every once in a while. Acknowledging and knowing how to deal with it will often separate the quitters from those who continue trading.
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