A significant difference between professional and amateur traders is how they react to losses. Amateurs panic after many losses and are unable to stop the losing streak. On the contrary, professionals can accept losses.
Losses are controllable. Many amateur traders need to be aware of this fact. Successfully controlling losses can make a huge difference in trading performance and mentality.
So, how can you stop a losing streak in your trading?
1. Stop trading
After a closed position results in a loss, stop trading instead of immediately opening a new position. While this is easier said than done, many traders find it challenging to stop trading because they fail to make good decisions when making losses.
After a loss, some traders do not think about additional losses because they are pursuing profit to regain their lost money. This behavior can lead to dangerous trades that ignore the trade plan prepared in advance, so it is vital to develop the habit of stopping trading after a loss. You must always follow your trade plan to recoup your losses. Professional traders have built rules to avoid further losses, even if they suffer losses.
When you stop trading, step away from the charts and take a break; a break of at least five minutes will help you regain your composure. After the break, we will conduct another market analysis to see if we need to adjust our strategy and prepare for the next trade.
2. Review successful trades
After a loss, reviewing trades that worked well in the past can provide new insights. It also offers an opportunity to regain confidence from past successes. We will analyze how the market moved and when the trade was successful and look for differences from the current trade. This process will allow you to adjust your strategy.
If the successful trade and the trade that resulted in the current loss are similar in both trend conditions and volatility, you may not have used your trading strategy well. Many traders think they have traded according to plan, but when they analyze their trades afterward, they almost always find areas for improvement, such as that they did not actually trade according to their strategy, that they entered too late, or that they bought on a negative trend line.
In this way, comparing your trades with successful trades can be very helpful in understanding how to improve your current trades.
3. Take smaller positions or go back to demo trading
One of the most common ways to stop a losing streak in a trade is to have too large a position at a loss. We tend to make our positions too large in an attempt to regain our lost money. However, this approach only increases the losses significantly and does not lead to large profits.
Two problems arise from incurring large losses. The first is that the account balance will decrease significantly. The second is that you lose confidence as a trader due to consecutive losses. A lack of confidence means that you have a fear of loss and therefore lose the confidence and judgment to make a profit. This is a very dangerous situation because you will then lose control of yourself.
To regain your lost confidence and, above all, to stop the losing streak of trades, change the way you trade. We recommend that you either drop your position to a minimum size and continue trading, or go back to demo trading and adjust your strategy. Small losses will allow you to continue trading without mental disturbances, and with a demo account, you do not have to fear the losses themselves. Focus on stabilizing your results and regaining your confidence.