Every trader has come across that losing streak that shook their confidence. How you handle such moments can determine whether you become a successful trader or not. Losing is a part of trading, and it is inevitable.
However, sometimes traders can experience a string of losses that require specific skills to recover from. It is important to learn how to manage these losses to live longer as a trader. This article will look at some of the ways you can recover from losing trades and continue growing your account.
Analyse Losing Trades
The first strategy for recovering from losing trades is to analyse and understand what is causing the losses. Apart from being a normal part of any strategy, losses can sometimes result from increased volatility, impulsive trading and lack of discipline.
Volatility
Volatility in the markets can increase due to economic or political developments. Big economic reports like inflation and central bank interest rate decisions can lead to a spike in volatility.
At the same time, political developments like a change in leadership can create turmoil in markets, increasing your chance of losing. If, in this case, you are using stop losses, it will be easy for the price to trigger these stops.
Therefore, staying informed about the upcoming and most recent news is the best way to avoid this. This will allow you to close all your positions or adjust your stop losses to withstand increased volatility.
You can get all your news on the cTrader platform on Dominion Markets. This will allow you to adjust your trading during times of increased volatility.
Impulsive Trading
Losses can also occur due to impulsive trading or emotional trading. Successful traders have learnt to keep emotions out of trading because they can lead to significant losses.
For instance, a winning streak can boost your confidence and increase your ego as a trader. This can lead to overtrading and losses. On the other hand, a string of losses can hurt your ego, leading to a string of poor revenge trades, which only increase your losses.
Trading without emotions means sticking to your plan no matter what the market throws at you. Therefore, it would be better to take a break when your emotions take over.
Lack of Discipline
Lack of discipline and emotional trading go hand in hand. When you have a clear strategy that spells out exactly how you should enter and exit trades, you should stick to it as long as it is a winning strategy. Otherwise, losing streaks can push you to keep changing the strategy, leading to poorer results in the long run. Sticking to your strategy requires discipline that can only come when you have confidence.
The best way to build this confidence is to backtest the strategy and ensure that it brings returns in the long run. This will improve your discipline and trading results. The cTrader platform has a backtesting feature known as the Market Replay, which gives you an almost real market experience.
Keeping records and having a trading journal is a good way to ensure that you constantly analyze your losses. This will ensure that you record everything to spot the mistakes at the end of the day and correct them.
Use Psychology
Another strategy for recovering from losing trades is using psychology. Here, traders must separate from their emotions and focus on long-term market survival. The first step to doing this is accepting that losses are a part of the game. This way, you can control your emotions during a losing streak.
Another way to use psychology is to stay calm and avoid revenge trading. The best way to do this is to take a break from tryading and take the time to analyse your recent trades. If you are losing confidence, a good analysis will help you regain your confidence and continue trading according to your strategy.
Risk Management
Risk management is a major strategy when it comes to managing losses. A risk management strategy will ensure that your losses are not too big to recover from. There are several risk management strategies, including using stop losses and a risk-reward ratio.
Stop Losses
The first technique is using a risk-reward ratio while setting your stop loss. A risk-reward ratio controls how much a trader is willing to lose and how much they will make if the trade wins. Therefore, it allows you to ensure that you win more than you lose per trade. This is a great way to improve your results and survive in the market.
For instance, risking 1% with a reward of 3% will put your risk-reward ratio at 1:3. It is also important to ensure that you do not set very tight stop losses trying to get a bigger reward. This might lead to poor results since there will be little room for the trade to play out. The stop loss should always be realistic and placed at a safe distance, depending on your strategy.
Using Trailing Stop Losses
A stop loss protects your capital in case the trade ends up losing. Traders set stop losses based on many factors like technical analysis, volatility, and capital percentage. Having a stop loss will manage your losses. Therefore, you will only lose what you were ready to give up.
On the other hand, without a stop loss, you can encounter significant losses that put you in a deep drawdown. In this case, it becomes difficult to recover.
There are several types of stop losses on platform that will help you manage risk. These include the simple, trailing, and advanced stop losses.
Risk Reward Ratio
Meanwhile, a risk-reward ratio will ensure you keep growing your account despite losses. A good risk-reward ratio ensures that you win more than you lose. Therefore, whenever you lose, the losses are small enough to recover from. On the other hand, when you win, you gain enough room to withstand more losses and grow simultaneously.
Have a Recovery Plan
Finally, traders should have a recovery plan after they experience a streak of losing trades. A good plan involves analysing what caused your losses and working to improve your weak areas. If you suffer from a lack of confidence, the best recovery plan is to backtest your strategy. On the other hand, if your strategy is the problem, you can tweak it for better results or use a different one with a proven track record. However, before doing this, you must analyse your previous trades.
Your recovery plan will depend on what is causing your losses. If it is poor risk management, you should focus on adding a stop loss to your strategy.
What to Avoid After a Losing Streak
Losing streaks can bring out the worst in traders. However, you must avoid losing yourself in this dark pit.
- Avoid revenge trading, which can cause more harm.
- Avoid increasing your leverage. Sometimes, traders believe a bigger winning potential will help them recover. However, the losses will also increase in size.
- Avoid strategy hopping. Although you can change a strategy that is not working, avoid skipping from one to another without proper analysis.