Friday, November 3, 2017

How to Break a Losing Streak | Trading Psychology

Today's Trading Psychology Question is...

“What’s the most effective way to break a losing streak? 

I’ve been consistently-profitable for 9 months now, but I’m going through a period of draw-down and I need something to snap myself out of it, can you cover this topic in your next video?”

This is a great question… and if you haven’t experienced a losing streak before, you’re most likely not trading, haha.  As we all know, even the best traders go through cold streaks.

We all go through periods of time where it feels like the market is out to get us, but the most important thing to remember is to not take it personally.  I know... easier said than done.

I’ve had a few losing streaks in my career, and the four (4) most important things that have helped me through those periods were…

1.      Remembering What Got You There
2.      Don’t Take It Personally
3.      Offset the Low Self-Confidence
4.      Change Your Environment

#1 - Remember What Got You There:

Now, I’m assuming that you do have a trading strategy that delivers a statistical reliability for your trading, your strategy has proper risk-management (meaning you’re not risking 100 ticks to earn 10 ticks) and you are executing that strategy correctly, according to rules, so let’s be quite clear on that first… you need a professional strategy, not just gambling.

If you find yourself in a rut, look back at your previous trading results.  This is where you journal comes in handy (which I’ve covered in previous videos), because if you did your job correctly with your journal then it will be easy for you to find examples where your trading strategy has worked for many weeks consistently with success.

Take a moment to go back and look at your previous successful trades, remember, that although it may FEEL like the world is crashing down on you today, it’s always the darkest before the dawn, and like all things in our lives, this too will pass.

Our big challenge is not to allow stress and anxiety to make this process worse.

Tip #1 is Remember what got you there… go back and read your journal to remind yourself that you DO know how to trade, and your strategy DOES work in the long-term, even though it may not be working in the short-term.

#2 - Don’t Take It Personally

I think the hardest part of a losing streak is the feeling like you’ve lost your identity.  This is the hardest one for me.  When I’m winning I can run through a brick wall, but when I’m losing, it’s like I’m back in high school not getting picked for the varsity baseball team.  It hurts, and it makes you feel like you’re not good at anything anymore.

I know it doesn’t make it any easier, but remember that the markets don’t know who I am, they don’t care about me, they were around long before I came on the scene, and they will be around long afterwards, doing exactly the same thing.

#2 is.. don’t take it personally… because internalizing this is a waste of energy, and won’t make it any easier.

To make this easier, that leads me to the next topic…

#3 - Offset the Lack of Self-Confidence

This is a big one for me, and it’s something I use in many different parts of my life, especially in trading.

This losing streak you’re on, it’s making you feel worthless as a person, and that makes you act out of emotion, and which usually makes it even worse.

To offset that feeling, I like to try to find something I’m good at, to make me feel better about myself.

For me, it’s always been sports and friends.

I love to run, ride, swim, get outdoors.  When I find myself in a rut, I tend to do MORE of these activities, because when I do them, I feel better about myself, and that self-confidence is rocket-fuel for your trading.

You might love to paint, or take pictures, anything, it doesn’t matter, just find something you’re good at, and increase the amount of time you spend doing those activities when times get tough.

I would also suggest spending time with friends.  You know… those people who know everything about you, and STILL like you… those are your friends.

Spending time with friends does a great job at reminding you of the “good old” days, when you weren’t all stressed out, and it reminds you that you can get through this, you always do, it just takes time.

If you REALLY want to max-out this strategy… donate your time to helping someone who’s less fortunate than you, and ask your friend(s) to join you. 

There’s nothing more inspiring than helping someone else, and if you can do it with a true friend, it’s one of the best “highs” you can have, trust me.

So #3 is to do something, with friends, to get your mojo back on track again.

Now… that should help you recover from the emotions involved with this, but now let’s talk about ways you can actually BREAK this losing streak you’re on.

#4 - Change Your Environment & Change Your Mindset:

One of the most effective ways to break out of a rut is to change your environment, which is why so many people love to travel, because it challenges their “world view” and changes who they are fundamentally.

Have you ever noticed… people act differently at home with family, then they do when they are at work with coworkers?  Have you noticed that people act differently with friends, then total strangers?

You know…I can drive to the grocery store down the street (almost) with my eyes closed… why is that?

Because human beings adapt quickly to their environment, and even more importantly, we are creatures of habit.  It’s a survival technique that’s been passed-down from our grandparents.

When we are in the same environment, day after day, we learn to adapt our actions, we adapt our emotions, we adapt everything to fit that specific environment.

Think about your trading day…

If you’re anything like me, you probably wake-up at the same time, eat the same breakfast, where the same clothes (ok maybe that’s just me), do your same market prep, and ultimately trade the same way every day, right?

Now… I’m a big fan of routine because I believe that repetition is the stone that hones the knife of success, but that repetition can become obsolete, and all of a sudden, we need to develop a new and improved routine.

To improve your routine means making some changes, and although change is usually a little painful, you’ll find that within a few days, that new routine will feel even better than before.

So…Here are some ways to change your routine…

A.     Add Something Before You Trade:

This is one of my favorites because it really works.  Find something you enjoy, or makes you feel good about yourself, and start doing that before you trade each day. 

Trading during a losing streak feels like emotional torture because you can’t blame the markets, you can’t blame anyone else besides yourself, and if you are blaming someone else, you need to re-adjust your attitude even more, and that’s a whole new topic to cover.

One benefit of being a trader is that you get to be your own boss, which means we are each responsible for our own actions.  We take the credit when times are good, and when they are bad, it’s part of being a professional.

Getting back on topic… I would recommend you add something to your routine BEFORE you trade each day, which will hopefully get your mind into a more receptive state before you trade.

Try mediational, exercise, music, art, watching a recording from a previous trading day, something to change up the way you BEGIN your trading day.

Another way to change your routine…

B.     Trade from a Different Location:

I just had a great example of this… a client of mine just recently changed the position of her desk in her office to face the window and she can feel the cool air coming in each morning, she can hear the birds outside, and it just makes her happy, and it’s improved her trading.  Simple stuff like that.

Are you trading from home?  Try a coffee shop?

Are you trading from an office?  Try trading from your basement at home?

Are you filled with distractions in your trading area?  Find a place that’s quiet. (or vice versa!)

This change can be small, it can be large, anything will help. 

Change is the enemy of your losing streak, and yes it will be painful at first, but it will help make you a better trader in the long-run.  And remember, you can always go back to where you were before, this isn’t permanent.

Another way to change your routine…

C.     Seek Alternative Views About the Market:

This is one of the hardest things for us to do, but it might be the most important for long-term success.

In addition to changing your location… let’s also try to change our mindset!

The reality is, we are programmed to seek out confirming views of the ways we see life. 

This is why people usually hang-out with other people who look like them, think like them, act like them.  We like to spend time with people who share the same world views as we do.  It’s human nature, Simple as that.

For example, if you think Crude Oil is bullish, you are going to instinctively seek out other people who share the same view. 

Even more important… if you’re a bull on oil… you’re going to discredit and probably try to ignore anyone’s view that contradicts that view.

Or…If you like to use a specific moving-average in your trading, you will most likely spend most of your time with traders who think the same way too.

If you surround yourself with other people who are always in agreement with what you believe, it will be very difficult for you to grow as a trader.

I know this is hard, but if you’re a Bull on Gold, it’s a good idea to find someone who’s a Bear, and ask him/her to share their perspective. 

If you’re indicators are telling you to SELL, then find someone whose indicators are telling them to BUY, and so forth.

Get in their head, learn WHY they have a different view.  If you learn ONE thing from this exercise it will be that there are MANY different ways to trade the markets.

And…you never know, you just might learn something that will benefit your own trading strategy in the process.

Another way to change your routine…

D.     Look at The Markets Differently:

This is scary for most traders, and it’s easy to see why. 

Traders are some of the most superstitious people on the planet.  Once they find something that works, they are scared to make any changes, but small changes are essential to our success.

For example, if you trade with a 5-minute chart, try using a tick chart, or a volume chart.

If you’re relying heavily on indicators, strip them all off the chart, load up market replay, and go back and watch a week of price-action without all that clutter on your charts.

In other words, use different charts, different indicators, no indicators, anything it takes to look at the markets differently because when you come back to your trading strategy, you will be amazed at how much “more” you will see on the charts.

I know this is going to feel like you’re wasting time, or like you’re going to ruin your strategy, but trust me, a few days of doing something different won’t kill your strategy, it will most likely improve your ability to execute your strategy when you return back again.

The final way to change things up…

E.      Take a Break from Trading:

This is actually something that I have built-into my personal routine.  I take what I call a “strategic” break from my desk every 3 months (4 times per year) to clear my mind, to take care of personal stuff, to feed my soul, etc.

You know, I get it… when you’re new to trading, you feel like every second counts, and you’re right.  But just like an expensive Formula One race car needs to pull off the race track for new tires and fuel, we too need to take a “pit stop” if we’re going to win this marathon that we call a trading career.

One thing I learned early in my career is that you WILL burn out if you don’t take breaks, and it won’t be pretty.  Not to mention, if you do nothing but work, when you DO find success, you won’t have anyone to share it with, or anything outside of trading to find joy, and that’s not going to make you truly happy.

Bottom line is, we all need to take a break from trading every once in a while.  I recommend you mark your calendar four times per year, tell your family and friends, and go see grandma, go spend time with your niece, go hike the biggest mountain in your city, take a road trip to Vegas with an old friend, whatever, just get the hell out from behind that desk and go live a little bit. 

Ok… we’ve covered a lot in this video… let’s recap:

The four (4) most effective ways to break out of a trading rut are…

·        Remember What Got You There by Using Your Journal
·        Don’t Take It Personally Because the Market Doesn’t Know You
·        Offset the Low Self-Confidence with Hobbies & Friends
·        Change Your Environment by…
o   Adding Something Before You Trade
o   Trading in a Different Location
o   Looking at the Market Differently
o   Seeking Different Views on the Market
o   Taking a “Strategic” Break from the Computer

And before I let you go… if you’re dealing with this issue, the most important thing you can do is to take ACTION. 

Don’t just say you will, I gave you a roadmap in this video, and all you have to do is take action.  Trust me, it’s painful at first, but you’re going to love your results.

And if you have any other topics you would like me to cover on these videos, drop me a comment below the video, be sure to give me a thumbs-UP on YouTube, share this with a friend because no matter what strategy you’re using, or which market is your favorite, we all battle these issues of trading psychology.

Be sure to catch my next Nightly Newsletter Monday thru Thursday evenings, and come join me in my trade room as a member of

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