4 Ways for Crypto Traders to Fight a Losing Streak
By David - 01-Nov-2020
Every trader loses, and sometimes losses extend to a streak of bad trades.
Human psychology is wired in a way where it focuses on the negative more than the positive. So, in a zero-sum game like trading, a trader will stay losing unless the decide to master how to handle losses – where it’s a single loss or a series of them.
If a losing streak starts affecting a trader’s stress, emotions or focus, the absolute best thing to do is focus on what they can control and accept what they cannot. No one can control the market. But traders can control themselves and their next decision.
Making a Losing Streak Worse
Before exploring ways to fight a losing streak, it’s important to understand what can make the streak even worse – and avoid those things.
Do these things to keep losing:
- Take oversized trades.
- Ignore heightened emotions.
Think about trading like speeding in a car. The driver has full control over your vehicle to take it to max speed, but suddenly as they are weaving in and out of traffic – their margins for error have shrunk. One unexpected move by another vehicle (i.e., one small market movement) and they will certainly crash (i.e., lose more money or worse).
Bigger losses, higher fees, and greater stress levels that come from mismanaging these losing situations will mess up even the most experienced trader.
High stress levels require too much brainpower and easily overproduce the hormone cortisol. This hormone is responsible for forgetfulness. Enough of it, and a trader will easily forget their own trading plan. This is why skilled traders aim to have maximum clarity after exiting trades – stressed traders cannot figure out why the keep making the wrong decisions.
Managing position sizing and account risk management automatically resets emotions in favor of the trader. Having these unseen advantages makes it easy to implement tactics that fight losing streaks.
How to Fight a Losing Streak
Here’s a list of key things to know and direct actions to follow whenever facing a losing streak.
1: Acknowledge it’s OK to Lose
Every trader needs to be OK with uncertainty. Overcoming the mental block that says it’s not OK to be wrong marks a huge step forward for every trader. For example, consider a trader with a 34% win rate.
- 34% overall win rate
- 3 RR (risk-reward) strategy
- 2% risk per trade
This trader is still profitable! In fact, it would take 100 consecutive losses for their entire account to be in jeopardy. (And if they lose 100 trades in a row, that trader should consider a career change.) Having three or five losses in a row, and this trader will still be okay to move on to the next trade and plan for a win.
So, remember: a low win rate, high risk-reward ratios, and small account risk sets up even the most novice trader to be profitable over the long term.
2: Study Trading Performance Data
Losing streams tempt traders to go against their trading plan and bend some of their rules. Losing money makes these changes feel justified because something seems to be going wrong. But studying historical performance makes it clear if something is fundamentally wrong with a trading system or if the trader is just going through a temporary period of being out of sync with the market (again, losing is normal).
Trade duration is one key statistic trades can study. Inside every CMM dashboard, for example, is a statistical report showing the correlation between time spent in trades (duration) and the success of those trades (win and loss rate).
With this data, traders are equipped to decide if they want to change their directional bias or if they are just suffering from short bursts of uncertainty and losses. Read the chart; see if a trade appears; stick to a plan.
The more historical data a trader has, moreover, the more they can be convinced of using this data as confirmation to stay in a trade or stick to their plan until they’ve met their targets for risk or profit.
3: Set Alerts and Leave the Screen
Losses can increase the level of attachment traders have to their next trades. Do not try to pare losses quicky – diffuse this mindset as quickly as possible. The market is not going anywhere.
Traders cannot control the price. But the price can control them.
During a losing stream, the absolute best thing to do is direct attention away from the charts altogether. Take a walk, go for a bike ride, or do something else totally unrelated to trading. This is certainly easier said than done, but it is an essential part of successful trading. Good traders always want to keep their stress levels in check and emotions balanced when real money is on the line.
Set alerts for price levels of interest using a charting tool like TradingView.
Take advantage of an opportunity if the alerts are triggered, and evaluate thoughts and feelings if the alerts are triggered.
4: Realize That Trading Is Speculating
Every moment in the market is unique. And past performance never guarantees future results – this applies equally to winning streaks and losing streaks. So, anyone who is actively speculating on the markets like every other trader, they have to accept that losing streaks are a normal occurrence in this game.
During a losing streak, some traders may think that their preferred setups are not appearing or playing out as they should. So, they become discouraged and close a trade prematurely. Dismantling this mental bias comes from understanding the nature of this game accepting that every setup will not play out the same way previous trades have.
The best thing any trader can do during times of uncertainty coupled with losses is stay committed to their trading plan, their setups, and their trading rules – no matter what how the market behaves.
This mental edge comes from consistency, conviction and discipline. These are super powers to make every losing streak harmless in the long run.
5: Memorize These Tactics
Reading this blog post is a great start, but traders should commit these principles to their subconscious through memorization to see real results when trading. Juts knowing about them is not enough.
The volatile, high-performance nature of trading can make it easy to forget effective ways to manage and recover from losing streaks.
Here are a few quick tips for memorization:
- Write these tips on paper
- Keep this paper on a desk
- Bookmark this blog post
- Create a trading journal
The more practice a trader has managing losses, they better equipped they will become escaping (or avoiding) losing streaks in the future. Losing streaks are temporary setbacks only if the trader knows how to manage them.