Sooner or later, every trader learns that the market is always right. You will experience winning streaks where you can do wrong quickly transition to losing streaks where you cannot put on a winning trade to save your life.
As we discussed in the last article in the series, inexperienced traders on winning streaks will start to oversize and start taking positions on setups that are outside of their niche. When the inevitable losing trades occur, they lose huge portions of their trading account and wipe out weeks or months of profitable trading.
What differentiates the winning traders from the losing traders from profitable traders is how they respond to and manage drawdowns. Most traders quit after their first major drawdown, and make excuses like “the market is rigged”.
So how do you bounce back after a massive drawdown? How do you overcome inconsistency in your trading results so you can do this for a living?
The Inconsistency Phase
As soon as you thought you started to find trading consistency, you take a big loss and give back a month’s worth of profits. Your success made you become complacent, and then the market deals a crushing blow to your confidence and your trading account. This is known as “the hot hand fallacy”, which often follows a period of successful trading results.
Eventually, you are brought down to earth. You go from having week after week of green trades to red day after red day. Many traders fail not because they cannot put on winning trades. They fail because their losing trades wipe out all of their gains from their winning trades.
Balancing Confidence and Over-Confidence
“Confidence is knowing you can make it through the day without screwing up. Overconfidence is thinking you can do it again tomorrow.” This phase of your trading career is all about finding a balance between these two extremes and refining your trading strategy so you can achieve consistent trading results. Successful traders are confident but humble. They have mastered their psychology to achieve the best trading results. We will go into more detail on these topics on our free webinar on the 23rd.
Sizing Correctly To Survive
A key component of every successful trader career is they know when to increase their trading size, and know when to decrease it. A key component to surviving a trading drawdown is to drastically decrease your position sizing. Most traders make the mistake of actually increasing their position size when they are on a losing streak because they feel the need to make back the money they just lost. What you need to do is slowly increase your size when you start finding consistency. Be sure to slowly increase your size once you start finding consistency again to avoid emotional trading.
Mentorship and Journaling
These are the two things you need to find consistency in your trading and exponentially shorten your learning curve. Mentors who have survived and thrived in the markets for years will tell you exactly what you are doing wrong, and what you need to do to fix it. Mentors are crucial to trading success, but they must be combined with diligent journaling. Our trading bootcamp is designed to provide you with all the mentorship you need to find consistency in your trading results.
Journaling is the secret to finding trading consistency. What isn’t measured, cannot be improved. A trading journal will allow you to figure out what is causing your good and bad trading results. There are no successful traders who do not update and study their trading journal on a daily basis. Our reccoemended trading journal is Tradervue, which you can check out here.
Free Trading Webinar
Over the next 2 days, we will do an article about each of the next 2 phases so you will know exactly what to expect during your trading journey. At the end of the series, we will do a free webinar showing you exactly how to get past whatever phase you are stuck on.