How To End A Losing Streak In Forex?
Nobody enjoys a losing streak, markets seem to give a never-ending stream of loses during these times, but if a trader follows the correct guidelines then it will come to an end.
When trading Forex you need to be able to manage losing streaks as well as winning streaks correctly, so that in the long run you can achieve your profit objectives. Each comes with its own challenges but this post will focus on how to manage, and eventually end, losing streaks in trading.
Are you in a losing streak? Do you want to prepare properly for the bad times in advance? Following are the rules and techniques to end losing streaks ASAP and with as little damage to your capital.
1. Make sure you are trading with an edge
Before we dig any deeper, you need to make sure that you are trading with a positive expectancy system AKA AN EDGE! Without an edge, no money can be made in the Forex market or any market. First, find out if you are trading with an edge, if not your losing streak will continue forever.
How can you determine if you have an edge? Determining if you have an edge without putting your real money at risk is possible, you can backtest a trading system or trade on a demo account for an extended period.
Once completed, determine if the system makes money or not. Should the system have a positive expectancy and you are in a losing streak, it will end eventually, now we look at how to deal with it.
2. Trust in the probabilities
Trading inevitably comes with a series of losers but with a positive expectancy, a series of winners will eventually come and pay for the losers, plus a little extra. Learning to trust in the probabilities is key when the positive results are not showing.
Trusting the probabilities begins with an understanding of the subject as well as your system, know the statistics of your system and the losing periods it encountered in the past. This knowledge allows the trader in you to keep executing even though there are no short-term gains.
Probabilities do not change, if your system has a 60% win rate then a series of losers does not change anything. Each trade that you make still has a 60% chance of being profitable, keep this in mind so that you and execute clearly and objectively.
3. Understand trading psychology
Losing streaks can test even the best trader’s psychology, during bad trading periods, emotions are running high and you are likely to find errors in your execution.
Prevention of bad trading starts with understanding the emotions that are the most prominent in trading and grow to cope with them effectively. Knowing yourself and having an awareness of your emotions is the next part of getting a grip of trading psychology.
Weathering storms is only possible when trading psychology is your friend, and there is no bigger storm than a losing streak. When a trader has mastered this element, trading errors during drawdowns become almost non-existent and all that needs to be done is continuous trading until the good periods come along, that is the next point.
4. Follow your trading strategy
It does not matter if you are up, down or flat; following your strategy is a constant that should never change. You already know if you have a positive expectancy, as long as you do then the probabilities that were mentioned earlier will eventually turn in your favour and the profits will flow.
But… if you stop following your rules, the probabilities will never balance out and the losing streak will get longer and longer. Until you start following your strategy again, you are removing the potential to make a profit in the long run.
Focus and execute objectively by always keeping your trading rules on hand to guide you and prevent emotions from taking the wheel.
5. Manage risk
Again, you should always be managing risk, but it is important to keep a keen eye on it during losing periods. Stay within the limits you set yourself and let those guidelines steer your decision making. Do not bet more and try to make a big profit that pays for all the loses!
Some traders even consider reducing risk during losing periods to reduce the damage to their equity and prevent any psychological scars that could hinder future trading. Maybe try this approach and see if it helps you to gain confidence in your trading?
Every trader will come across the rule- Cut loses short and let winners run. This applies at all times, if you are in a losing streak do not let the market extend past the point the trade should be closed at and hope the market will turn in your favor. Also do not cut your winning trades short because of fear, let them run because these profits bring losing streaks to an end.
6. Do not revenge trade
Revenge trading entails placing trades to try and get back at the market by making a profit, usually accompanied by trading errors such as risking too much or breaking the rules of a system. Profitable trading does not involve getting revenge on the market, it involves flowing your rules and working with the information available to you.
If you feel angry towards the market when losing, question yourself before every trade and make sure you are placing it because your system is telling you to.
7. Do not overtrade
You may have already noticed that many of these points are overlapping, but each has its own distinctions. Overtrading refers to breaking trading rules in some way in an attempt to make up for loses e.g. increasing position size or placing too many trades at once.
Trading slumps do not end in one dramatic move, they end by consistent execution of your system and as a result a series of winning trades. Never think about making one big trade to turn things around, usually, this will lead to an even bigger hole.
8. Determine the reason for your losing streak
Now that we have reviewed all the considerations while in a losing streak, its time to determine what is the cause of the losing streak? As long as you have a positive expectancy there can only be 2 possibilities: 1. The market is simply not in favour of your system at the moment. 2. You are not following your approach and as a result, you are losing money.
If you are falling victim to one or more of the trading errors in this article consistently i.e. not following your system, then you are the cause of the losing streak. Ouch, that hurt! But its true, now at least you know and can work on improving yourself. psychology By learning constantly and keeping track of your errors you will no longer fall prey to trading psychology.
Have been following your system and you are in a losing streak? Yay, the problem is not you. Continue to execute properly and, in time, the losing streak will become a winning streak.
That is it, you now have the armour to power through losing streaks and make the best decisions for your profitability.
Time to keep growing and keep trading.