Slumps. Every trader experiences them. Nothing you do works, and it feels like you are only digging yourself deeper into a hole of bad trades and frustration. Like everyone else, I experience a slump once in awhile. Like losses, they are just a part of trading. You can allow yourself to become angry or depressed, but I can tell you from personal experience that just drags the slump out further. Here are the things I do when I’m having a bad run and need to break out of it!
Review your trades
I tell my Bootcamp students that they must journal their trades. Having a log of your trades when you’ve been on a hot streak is helpful, but it’s even better when you’re in a slump. See, none of us have a lot of objectivity when it comes to our own trading. You might think you are following your trading rules to the letter, but you’ll often find that’s not the case. That’s why we review and provide feedback on our students trades during Bootcamp – to provide that guidance and objectivity its hard to get on your own.
When you are in a slump and reviewing your journal, look for any changes that might have occurred when you first entered your slump. Did you begin to disregard stop losses? Did you try a new setup? What’s different?
But – and this important – if your trading didn’t change, that could be the problem. If the market has been crashing lately and you are still trading like its a raging bull, that could be your problem. Or perhaps that hot sector isn’t so hot anymore, but you’ve been too locked into your habits to notice. Use your trading journal to look for clues.
Change your position sizes and/or setups
Now that you’ve reviewed your trading journal and have some idea of what’s broken, it’s time to fix it. Aside from changing your setups, there’s a significant change you can make to your trading habits – your position size. When you’re in a slump, you often lose confidence as you see your account whittled down. Regaining confidence in your trading system and your ability to execute it is paramount; reduce your position size temporarily. This will take some of the pressure off, as you won’t feel like you have so much riding on every trade. Once you have broken the slump, you can increase your position sizes again.
Change your environment
Our environments have a significant influence on our mood and thought patterns. If you are in a rut, then making changes to your work environment could be the change you need. For me, that usually means going on a vacation! Of course, as a trader I can still work on the road. I find that just being somewhere else for a few days or weeks can provide the catalyst for change. It disrupts my mood and habits enough to give me a new perspective.
Of course, it doesn’t have to be as drastic as going to another country. Even something as simple as taking your laptop to a different room, or working from a cafe for a few hours in the morning can shake things up.
Take a break from trading
This is the most difficult advice to follow, but sometimes its the best. Trading is unlike almost every other job, where you get paid when you show up and meet your responsibilities. You can show up, give it your best, and lose money trading. So if the market is ugly, or you are just struggling to trade it, take a break for a couple days. Spend some time with your family. Watch some movies. Go for a hike. Do anything except sit at your computer trading, or obsessing about trading. A break like this can be the mental reboot you need – trust me, the market will be there when you get back!