What's the worst part of being a trader?
Losing a trade, of course.
Nothing ruins your day than seeing your best bet take a plunge and go all red.
Losing a trade or two is a natural part of being a trader, however. Losing five or six trades in a row is a different story altogether.
In this article, we'll provide you with the right strategies to break the losing cycle and bounce back from consecutive losses.
How do you know that you're on an actual losing streak?
Let's clearly define this phenomenon, which is every trader's nightmare.
A losing streak only happens if multiple losses occur even after:
- You’ve followed the trading rules you set 100%
- You’ve adhered to the same trading plan that has given you positive outcomes
However, if your losses happen because you deviated from your plan or broke a rule in the middle of a trade, then the loss is merely a negative result of your actions. The best solution is to go back to your trading plan, stick with it, and religiously follow your trading rules.
If indeed you're in a losing streak, then you need to deal with it properly. Take a break from trading. Analyse and re-analyse your trades. Don't trade through your losses.
But once you've done all that, what next? Because your next move could be the most daunting and the emotional rollercoaster you’ve gone through might make you a bit edgy.
1. Return to demo trading
Doing so can help you with several things:
- Regain your self-confidence and control
- Regain your faith in your trading plan
- Eliminate your loss-aversion mindset
- Preserve your capital
Your confidence might have been obliterated following a losing streak. If you don't regain it or the right trading mindset when you open your next trade, you'll be risking more than just your trading account.
More importantly, demo trading can help you reset your focus on trading rather than the outcome of an individual trade.
2. Trade with lower volatility markets
In Forex, certain currency pairs are the least volatile because they move less than 100 points per day. AUD/USD, for example, is the least volatile among major currency pairs, and AUD/CHF, CAD/CHF, CHF/JPY, and EUR/CHF among cross pairs.
If you trade these currencies, your risk exposure is lower. While this means your profit is also lower, you'll be able to build back your account without losing more of whatever was left of your capital.
Moreover, you'll be able to recover your winning mindset and get back into the routine of consistently making a profit.
3. Look for trades with a higher reward-risk ratio
A 3:1 reward-to-risk ratio, for example, gives you three times the potential to make a profit than what you're risking. This increases your profitability, allowing you to recoup your losses and bounce back from your losing streak.
For the best outcome, however, you should adjust risk-reward ratios according to your entry/exit points, timeframe, and trading environments. If you're scalping, a 3:1 reward-to-risk ratio can work against you since you'll need to gain 9 pips right off the bat. However, if you reduce your position size and widen your stop, you could hit a desirable risk-reward ratio.
4. Decrease the amount of leverage you’re using
Lower leverage prevents you from executing bigger volume trades due to lower margin, reducing your risk exposure as a result. This can also help eliminate your focus on winning or losing, so you can just enjoy the trades you make.
You can further protect your account by using trailing stops that will reduce your losses in the event that your trade goes against you.
5. Create a new trading plan
Remember the definition of a real losing streak? You might need to revisit your trading plan and rules and make slight changes to them if you're to increase your winning odds exponentially. After all, you've been faithful to them but you still ended up with multiple consecutive losses. Small improvements could make a huge difference.
- Increase the time spent trading from two hours to three, for example. Screen the charts during the weekend if needed. Maybe all you need is more time to analyse or read the news to avoid massive drawdowns from your account.
- Increase the frequency of using pending orders. Don't miss out on the best trades or waste time when the markets don't move. Pending orders also allow you to test a new strategy following a losing streak.
- Risk no more than 1% of your account to minimise your losses and prevent overtrading.
6. Automate your trades
Automated trading comes with several advantages, one of which is allowing you to backtest your strategy on a bigger sample size, using more timeframes or currencies, for example.
Doing so provides you with an unbiased insight into the efficacy or loopholes of your trading system so you can review and tweak it more efficiently. Once you've developed a near-perfect system, you can then use it to return to live trading but without emotions involved or human errors.
7. Use trading tools to help you trade efficiently
Different tools provide you with different ways to enter and exit the market profitably such as finding the right trading setup, managing risks, and avoiding market traps.
Some of the trading tools you can use are:
- Economic news calendars to perform fundamental analysis and identify the relative value of currencies based on a country's economic conditions. This is a built-in and free feature on the MT5 trading platform.
- A currency strength dashboard shows you which currencies are strong or weak.
- A currency correlation tool shows you whether a currency pair has a positive or negative correlation.
- A pip calculator tells you how much a pip is worth based on a local currency's position size.
- Technical indicators such as Relative Strength Index (RSI) and moving averages can help you spot bull traps.
A losing streak can happen to anyone. What is important is what you do and how you react when it does happen.
Ready to grow your wealth from the world's largest financial market? No better place to start than right here with us! Begin trading with Fullerton Markets today by opening an account:
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