Bad streaks and how to deal with them

watchdaride · Mar 25, 2004

this use to happen to me alot( it still will ) . I found i had a bad month after having a good month . I had to write down some rules to enter and exit trades. if it didnt fit the criteria ,skip the trade and thats hard when your thoughts were right and you passed on the trade. After i had a good winning streak i would take trades that were stupid because i thought i could do no wrong. Make a trading plan for entering and exiting and sticking to it has helped me .

reg · Mar 25, 2004

That was a gem of a post, threei. Thanks very much.

T-REX · Mar 25, 2004

Quote from Threei:

My recipe, worked for me many times after single big loss or losing streak:

1. Stop Trading For a While

Losing streak is most likely to impact your mental state too deep. You just are not ready to go in the battle again. Give yourself a break from tension. Wait for disgust by trading to pass and for curiosity and desire to try it again to return.

2. Trade Careful and Slow

Suppress natural desire to go for revenge and get it all back as fast as possible. Revenge trading wouldn't do any good to you. Trader can't see things clearly when goes for revenge. He wants opportunity to be there and his expectations are enormously high. Right question "what does market have to offer here" changes to wrong one: "what do I need from market".

3. Don't Be Aggressive

Stop looking for a trade! Sounds a bit strange, but the matter is: that desire for revenge is still there, within us, and we have much bigger chance than usually to "see" opportunity where there is none.
Sit and wait for the right trade to yell at you from the screen, for situation where you just can't ignore it - so strongly it feels like winning trade.

4. Maintain Safe Risk Trading

Ignore all the trades that wouldn't allow you to get out with smallest loss possible. You just can't afford any more big losses psychologically, even if you can money wise.

5. Take Action When It's Demanded

When you see the right trade don't second guess it. Just take it, like a machine that programmed to react on certain situation. In a way, try to be numb, not feeling anything. Setup - risk evaluation - trade. Trade doesn't work out - get out. Don't second guess, don't re-evaluate. Even if you get your profit by re-evaluating original plan, it will put that gambling feeling in you that will destroy confidence and self-control. What you need at this situation is total self-control because this is the only thing that can keep you from more hard losses.

6. Take Small Profit, Any Profit

Take relatively small profits not allowing them to disappear.
Yes, I know, it sounds not right: we need to fight the temptation to take small profits, and we need to let them run. But this situation is very specific psychologically and your biggest need is to regain the confidence. Many small profits taken work for this just perfect. Scalping is my way to dig myself out of a hole.

In order to do all this you need to become a machine: cut off all the feelings, forget about counting money, looking at your profits or losses. Just trade in a way that helps you to restore the feeling of being in control. You need to feel that you can take the trade when you see right one, that you can cut the loss as soon as trade shows it, and that you can take the money from the market. In order to achieve this state you have to cut as many external links as possible. What I mean by this: stop discussing your trades with anyone, stop asking questions about what other traders think. Don't tell anyone what you are doing, don't complain and don't explain. When you keep it all within yourself, you regain the power of responsibility.

Feeling that no one is there for you in uncomfortable but it puts you in charge and it means it gives you self control. Not many do it, but think of it this way: not many are successful. It means in order to be successful you have to do something different from what majority does (not really the most original thought in the world, I know). In this case it means: put yourself in charge. Heavy loss or losing streak that caused this situation had a reason. That reason resided within you, not outside. So, in order to prevent this to happen again you have to fix your inner state of mind. You can listen to advice about how to do it but nobody can DO it for you.
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Very well said.

However, I would add that if you are using a system that YOU yourself designed and backtested then you should already know the risk parameters and where the system breaks down?

Are you trading a trend following system?
-Then non-trending days are your worst nightmare. STAY OUT!

Are you trading a contrarian system?
-Then today was your worst nightmare. STAY OUT!

Know your system inside out and know yourself.

Be Encouraged

T-REX

Threei · Mar 25, 2004

Very true... there is one more possible solution though, aside from total staying out. Lower your time frame. If there is no trend on 30 min or 15 min, looking at 1 min can reveal tradeable trends. I realize that switching time frames could be involved as it interferes with personal temperament, however, scalping is amazing answer to many tough situations, both psychological and market related.

Don't get me wrong, I am not advocating for scalping being the best trading approach - there is no better or worst approach IMO. What I am saying is, scalping is universal and very safe (when done properly) trading style that deserves its place in any trader's arsenal, to survive difficult market or to dig oneself out of psychological hole.

And to your post, let's also admit one more difficulty: recognition of the day that won't allow your system to work... this recognition can come a bit too late for damage to be prevented

illiquid · Mar 25, 2004

Great post threei, that's a keeper in my book. The hardest part is just admitting you're on a bad streak and turn off the screen, but that's really the only way to kill a vicious cycle.

Mecro: I notice you've been railing alot about lack of action or unscrupulous specialists -- have you thought about looking at other markets? NQ's, currency futures, bonds all have decent volatility every day with excellent liquidity.

Anyways, we all get burned out once in a while, enjoy some time off and come back swinging.

Mecro · Mar 29, 2004

Quote from illiquid:

Great post threei, that's a keeper in my book. The hardest part is just admitting you're on a bad streak and turn off the screen, but that's really the only way to kill a vicious cycle.

Mecro: I notice you've been railing alot about lack of action or unscrupulous specialists -- have you thought about looking at other markets? NQ's, currency futures, bonds all have decent volatility every day with excellent liquidity.

Anyways, we all get burned out once in a while, enjoy some time off and come back swinging.
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Yeah I know bout NYSE and how it blows but I trade prop so my options are very limited. I think I'm gonna go in tomorrow and set up my Naz FINALLY. I really do not have that many options and would love to start trading Eminis, currencies, commodities, bonds and foreign equity markets but that's not what our office does. There are no mentors that would be able to guide me and then there are margin & other issues with trading other vechiles besides NYSE & Naz.

Once I build up some serious equity I'm gonna take the next step. I'm actually gonna start trading Russian market on simulation at night and see how it compares to the "advanced" equity markets of USA.

But for the immediate future, it's gonna have to be penny scalping.

omcate · Mar 29, 2004

Quote from Mecro:

Yeah I know bout NYSE and how it blows but I trade prop so my options are very limited. I think I'm gonna go in tomorrow and set up my Naz FINALLY.
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Hi,

Just out of curiosity. Why do the prop firms like listed stocks so much ?

Mecro · Mar 29, 2004

Quote from omcate:

Hi,

Just out of curiosity. Why do the prop firms like listed stocks so much ?

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The era of bullet scalping