Whether you’re trading full time or part time, trading slumps are an inevitable part of trading. Trading is a game of probabilities, so even if you are trading a proven strategy and are executing to perfection, you still may go through periods of time where you’re making bad trades.
Here are 3 ways you can deal with trading slumps to prevent them from having a significant draw down in your trading account.
Reduce Your Position Sizes
When you’re in a trading slump, there is no reason to be trading full size in every position you take. In order to make a living as a trader, you need to know when to get aggressive with your position sizing, and know when to size down to preserve your account. Slumps are a time when you will want to consider cutting your position sizes in half or more.
There is no reason to be trading size if you’re not making money. This will allow you to focus more on the actual trading setups you’re taking rather than the money you’re trying to extract from the market. Once you hit a few weeks of green, then you can start increasing your size back to normal. For more information about position sizing, check out this article.
Focus on Your Best Setup
When you’re in a slump, you need to stop taking a wide variety of trading setups, especially if you’re new. You need to look in your trading data and find the setup that has made you the most money over your career. To help recover your trading form, you should just sit on your hands until this setup comes along.
By doing this, you will only be allowing yourself to get involved in trading setups where you know you have an edge. It will only be a matter of time until the probabilities play out in your favor, and you will start to get the green days and weeks coming in again.
Take Time Off
Sometimes the best solution for a trading slump is to distance yourself from the markets, and stop trading for a few days or a week. During this time off you should go back and study your trading data. You should get up every day and just watch the markets, taking no trades.
This will allow you to detach from your need to make money from the markets, and focus on your own trading habits to figure out what is working and what is not.
Only 4 Seats Left in Our Next Live Trading Boot Camp!
Learn how to day trade and swing trade in live classes from veteran traders with over 20 years of trading experience. Only 4 seats left in our next class!