Every week I get asked how to get out of a losing streak.
It is an important question that really needs to be addressed because many people are regularly dealing with losing streaks, drawdowns and mental issues. Knowing how to work through those periods is crucial.
Let’s start at the foundation because we need to understand what a losing streak really is and what it is not:
A real losing streak is only a losing streak if you have respected your trading rules 100% and did everything correctly during the process.
If, on the other hand, you broke your rules (maybe you don’t even have rules!?) and made mistakes, you just traded poorly. A loss is then the outcome you deserve.
With those two sentences alone, you can evaluate and understand your losses in a completely new light already.
Loss are, thus, not just losses and we need to categorize losses the right way.
There is a big difference between “losing the right way” and “dumb losses“:
In this context, I want to re-share one of my most popular graphics which have been shared thousands of times by now. It nicely visualizes how to detach yourself from the outcome and understand the quality of your trading like a professional.
Now, let’s take a look at why being able to look at your losses the right way is so important. A trader who only stays at the surface level and does not know how to differentiate between a valid losing streak and just bad trading.
When a trader does not know about those concepts, he will mistakenly believe that his trading method is “not working” and that he needs to find something else. This is when they enter the never-ending vicious cycle of jumping from system to system and never understanding WHY they are failing.
I have watched dozens – probably hundreds by now – of traders repeat this cycle, sometimes even for years. It is sad and frustrating to watch because there is no hope as long as people do not understand where they are going wrong and that their trading is fundamentally flawed at the foundation.
The myth about consistency
At this point, I want to talk about consistency a bit. Whenever you listen to traders they say that they want consistent results. But when I look at their approach to trading it is everything BUT consistent.
You cannot expect consistency in your trading if you are changing things on a trade to trade basis, do not have rules, jump in and out of trades, change your risk all the time and jump around timeframes.
I know it is very tough but you need to get consistent in your approach FIRST before you can expect consistent results. It is not the other way around.
How to break free?
So how do you change now and what is the right path?!
First, you need to adopt a trading methodology with fixed rules and a proven framework. And, furthermore, you must understand that it won’t work from the beginning. You must slowly change yourself and turn yourself into the trader that can trade profitably. What does that mean? It means that profitable and successful trading is 20% the methodology and 80% the trader behind the method. The weakest link in a trading approach is always the trader himself because he is the one second-guessing signals, making knee-jerk decisions, breaking rules, taking too much risk and so on.
It’s a long, but fun, journey when you see your weekly improvements and go from one aha-moment to the next. This is for many traders the first time that they can make actually recognize real progress and gain hope, and not just rely on luck.
This is why I paid so much attention to delivering a fixed set of rules and a very clear framework in our Forex & Futures course for our students. I took out as much discretionary as possible to help traders get on the right path and adopt a more professional approach fast.
Secondly, every trader should have a trading journal and a way to review his performance. A trading journal is a great tool because it allows you to relive your trades once again and when you enter a trade after your trading day, you can objectively look at it and see whether you did everything correcltly or not.
During our trading, we often do not even recognize our mistakes when money is on the line and the price action moves rapidly. If a trader then does not have a journaling routine, he is not going to learn from his mistakes and he will repeat the same bad behavior forever.
Learning how to understand losing periods correctly and establishing a robust trading framework will be a game changer for traders who have been struggling and seeing inconsistent results.