Hitting a Brick Wall: What to Do When Your Trades Stop Working

Everyone has gone through it before. No matter how good of a trader you are, you have without a doubt had a rough stretch where none of your trades have worked, and you start doubting whether or not you have what it takes to make it as a trader. What do you do in situations like this?

After almost a decade of experience trading in the markets, I have tried pretty much everything. Here are the steps that I take to get back on the right track when nothing that I do seems to work:

1. Take at least a week off from trading. When your trades aren't working, you tend to want to spend even more time in front of the computer, questioning your trades and the reasons for making those trades. This is never pleasant, and you will probably have a dull headache from stress-related tension.

You really need to step away from the computer for a week if you are on a losing streak. Try not to think about trading at all. Focus on anything else. Go to the gym, go on a date, paint the bathroom, whatever; just don't trade or think about trading.

2. After this break, start paper-trading but don't trade for real yet. Collect some historical data from the past few months to a year. Are your strategies still sound? Do they work for the most part? This is a crucial junction, and you need to determine whether your strategies are flawed or if you are just the victim of the downside of variance.

3. Confident that your strategy is still a good one, you can begin trading again. Don't trade your normal size though. Scale it back to about 50% of the normal size of your trades. Trade small until you start regaining your confidence. If you trade at your normal size and you take a loss on your first trade, your confidence will be shot. Trade smaller.

4. Slowly start to re-immerse yourself in the markets again. Get back into your normal routine.

5. Finally, when you are starting to feel your confidence returning and you are satisfied that your strategies are sound and your small positions are profitable, return to your normal sized positions.

The biggest mistake that a person can make is increasing the size of their positions when they are losing. This is a typical mistake made by gamblers. They think to themselves, I lost $500, so I will bet double on the next position in order to make this money back. This is a classic gambler's mistake, and will lead to your ruin.

Follow my 5 step plan, and you will be back to full confidence.

Filed under: Stock Market Education | General Knowledge