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How To Overcome Trading Losses And Losing Streak 

Last Updated: July 13, 2022

By Rayner Teo


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In today’s episode, you’ll learn how to overcome your losing streak in trading to become a winning trader.

So listen now to find out…


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Hey, hey, what’s up my friend? 

In today’s episode, I want to talk about how to overcome your trading losses and losing streaks.

I’m sure at one point in time, you would probably face losses, 9, 10 losses in a row. And you wonder to yourself:

“Man, has my trading strategy stopped working? What’s going on?”

“Do I still continue trading the strategy?”

“But what if the losses accumulate even more?” 

“But if I don’t trade the strategy, what if the market reverses and I lose out on those potential gains?”

Do you see where I’m coming from? There are many dilemmas that come along when you’re encountering losses after losses. When you’re winning, there’re no problems. But when you’re losing, all the problems come at once.

So what should you do? 

I’ve got a few things to share with you on how to deal with trading losses and handling a losing streak in trading…

1. Know your maximum drawdown

Whatever system or strategy you trade, you must know what the maximum drawdown of that system is.

For example, my own systematic trend-following strategy over the last 20 years has a maximum drawdown of 25%. This means at one point in time, this system had a maximum loss of 25%.

So if I’m trading this system and I’m in a drawdown of 20%, will I panic? Not quite. Because I know that historically in the past, this system actually lost 25% of my capital if I were to trade it. 20% is near 25%, but not quite there yet. 

Also, your maximum drawdown or your maximum loss is always in the future. It’s never in the past.

Let’s say you have a maximum drawdown of 25% over the last 20 years. Guess what?

If you were to trade that system over the next 50 years, your maximum drawdown would be higher, maybe 30 or 40%. Your maximum drawdown is always in the future, never in the past. 

So first thing is to know your maximum drawdown of the system that you’re trading, then measure where you are at relative to the maximum drawdown. 

If your maximum drawdown is 30% and you’re now having a loss of 20%, then you know you shouldn’t panic. It’s still quite a distance away from your max drawdown. 

When I talk about max drawdown, it also takes into account your percentage risk.

Let’s say you risk 1% on each trade and you have a maximum drawdown of 25%. This means that your net-net loss is about 25 losing trades in total. So that is something to be aware of as well. 


2. To stop or to continue trading the strategy

So that’s another question you’ll face. And this depends on your trading approach.

Let’s talk about both approaches: discretionary trading and systematic trading. 

Discretionary trading

For discretionary trading, if you’re facing a losing streak or a drawdown, chances are, it’s your mind that’s causing issues.

Because as a discretionary trader, you’re more emotional, you want to revenge trade, you’ll want to trade larger. If you’re having all these feelings, my suggestion is to stop completely and walk away. You might even want to take a day or a week off from trading. 

Back then as a prop-trader, we have rules imposed on us. For starters, we could lose a maximum of only $500 per day. If we hit that limit, that’s it. We’re done for that day. We can walk away from the office and then come back the next day to start afresh.

This can be applied to your trading too. If you hit a maximum loss limit for the day, for the week, for the month, whatsoever – walk away.

Don’t dig deeper into your grave when you’re in a trading losing streak here.

Just take it as you’re done for the week. Stop trading and come back the next week feeling fresh. So that’s from a discretionary trading standpoint.

Systematic trading

For systematic traders, things are different. Because in systematic trading, you’ve already done all the testing and you know that the system works in the long run.

So even though you might be facing a drawdown, you want to continue trading that system even during your darkest period. 

And the reason for this is that if your trading system works, then the best time to be trading is usually when a system is in a drawdown because that’s where the market is likely to reverse in your favour sometime soon. 

You’ll have no idea when. But if your system is in a drawdown, you want to continue trading that system because that’s where the light at the end of the tunnel usually is at. 

If you stop trading it and the market makes a reversal, you’ll miss the move and you won’t make back those losses. 

So this is for systematic traders:

If you have a proven system that works but you’re in a drawdown, you want to continue trading that system. This is when being in a trading losing streak presents the best opportunity.

For me, if I see one of my systems in a drawdown, I tend to add more capital to it, because I believe in the system. But that’s for me. 

You’ve got to have that belief before you do such things. 

So that’s number two, understanding whether you’re coming from a discretionary or systematic trading point of view and then apply the appropriate techniques. 

And finally…

3. Understand your emotions

You’ll also need to understand why you’re feeling this way.

Why are you feeling so panicky when you’re in a drawdown? 

Chances are, it’s one of these two reasons:

#1: You’re trading with capital you can’t afford to lose

You might be trading a system that works with an edge. 

But if you’re trading with capital you can’t afford to lose, where the money is supposed to pay the bills, to feed the kids, to pay the mortgage whatsoever, then you’re going to feel it when you’re in a drawdown or facing a losing streak in trading. 

So don’t trade with capital you can’t afford to lose. Don’t touch capital that’s meant to pay the bills. That’s trading suicide.

#2: You’re trading a system you don’t believe in

You might be trading with capital you can afford to lose. 

But if you’re trading a strategy that you’re not convinced of or don’t believe in, then when the drawdown or losing streak in trading comes, trust me, you’ll abandon that trading system as well. 

So if you’re feeling uncomfortable, it’s probably because you’re trading with capital you can’t afford to lose or trading a system that you’ve not validated, and you don’t know if it has an edge in the markets. 

With that said, I have come to the end of today’s episode. 

I wish you good luck and good trading. I’ll talk to you soon.

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