Three Strategies to Stop a Trading Losing Streak

Everyone experiences trading losing streaks, from amateur traders to famous hedge fund managers. Learn three strategies to stop losing streaks.

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https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Stuck in a trading losing streak? Tips to help you break out
3 min read

Think the only certainties in life are death and taxes? If you trade stocks, you can add experiencing a losing streak to the list. It doesn’t matter if you’re an amateur trader or a famous hedge fund manager; everybody experiences trading losing streaks in the stock market from time to time.

Here are some tips and tricks for dealing with—and getting out of—losing streaks in your trading.

First, understand that trading is a zero-sum endeavor. That means there’s a winning side and a losing side to each trade, and both sides incur transaction costs. It’s not that you’re guaranteed to lose money, but it’s likely you might experience more losing trades than winning trades.

And that’s okay, because the goal in trading is to cut losers quickly and let winners run. So don’t confuse individual wins and losses with winning and losing. If you’re losing more trades than you’re winning, but your account equity is steadily increasing, you’re not only winning; you’re winning the right way.

Trade Small in a Slump

If, however, you’re losing more trades than you’re winning and you’re losing money, the first thing you want to do is to start trading smaller. And keep trading smaller as long as you’re losing. This is a risk management technique designed to ensure that when trading at your worst, you’re also trading at your smallest, which can help to protect your portfolio.

Consider Taking a Break

If your losing streak continues for a long time, and you’ve already taken your position size down, it might be time for a break. There’s nothing written in the universal law of trading that says you have to trade every day, or for that matter, how much you have to trade at all. In fact, to be honest, there really is no universal law of trading.

Taking a break from the markets during a trading losing streak can be good for you for a number of reasons. The first is that you may get some perspective. Often the market can become an all-encompassing focus in our lives: something that should, but doesn’t, stop when the closing bell rings. A break gives you an opportunity to acknowledge other facets of your life and remember that trading is just one of them.

Look Into the Mirror

One of the most important things you can do to get out of a losing streak is to ask yourself: “What’s changed?” The answer isn’t always obvious, but with a bit of introspection, you’d be surprised at what you might find out.

Have you been trading different types of stocks than you normally do? Are you trading more than usual? Less than usual? Are you trading during market hours that you normally avoid? Did the market turn particularly volatile before your losing streak began? Have you been trying to trade around earnings, events, or other announcements that you usually steer clear of?

Sometimes the change has nothing to do with the stock market at all. Changes in our personal lives can affect the way we trade and push us into a losing streak. Are your personal relationships going okay? Has anything changed recently? What about your physical condition? Have you had any health issues crop up?

A losing streak is a part of trading that can’t be avoided. But using proper money management while you’re experiencing a slump might help prevent too much damage to your bottom line. And a bit of introspection will often help you discover what changes preceded, and in all likelihood, precipitated, that losing streak.

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