One of the questions I’m frequently asked is “how do you recover from a losing streak?”
In Forex trading, we all know that it’s not possible to win 100% of the time. Actually, the odds are more in favour of you losing as opposed to winning, which is why money management is critical when trading the Forex market.
Arguably the most difficult challenge when it comes to trading is the psychological aspect, especially when trying to recover after a string of losses. You see, not only can we tend to want to make up the losses as fast as possible, but we also try to make a little extra at the same time.
Any experienced trader understands that just as there are losing streaks, there are also winning streaks. It also shouldn’t come as any surprise that losing streaks are more damaging to your trading account than any single loss.
But more significantly, losing streaks cause the most amount of damage on a trader’s confidence. It’s during these periods where you become vulnerable to making silly, amateur mistakes such as over trading, trading too large a position size, etc.
Suffering from exhaustion is the number one cause for mistakes when trading the Forex market. Scalpers and day traders in particular require extreme levels of concentration and razor sharp focus.
Simple tips to get back in the swing of things
Take a break
A simple way to begin to recover from a string of losses is to just take a break from Forex trading. This could be for the rest of the trading session for shorter term traders, or the rest of the week for a medium – longer term trader. Many traders tend to refuse to take a break from the market thinking that they’ll miss opportunities, but the reality is, the market will still be there tomorrow, a week from now, months from now, whether you’re there or not.
Then, when you’re ready to get back into it, start with half your usual position size until you rebuild confidence in your system.
You’ll be surprised at how beneficial a break can be for both your mind, and the bottom line of your trading account. The chances of coming back from a losing streak are greatly increased after a short break from the markets.
Switch up RR
Another easy way to help come back from a losing streak is to make sure you’re extra fussy and patient with your setups by focussing only on trades where the risk-reward ratio is at least 1:3.
Of course it’s possible to achieve even higher risk-reward ratios, though it’s quite rare with any forex trading system. Regardless, the key concept here is to improve these ratios to build confidence that recovery from a losing streak is not only possible, but likely.
Coming back from a series of losses is a mentally challenging task, but it comes with the job as a forex trader. Throughout our trading careers there will always be periods of drawdowns, just as there will be periods of excellent performance.
The key is to take some time out, tighten up your money management rules, and ease your way back in.
Source: Vantage FX Blog