How to Overcome a Trading Losing Streak // Ep. 26

In This Episode

• The first question you should ask during a losing streak
• The easiest way to make more profit
• The common sense way to develop new profitable trading systems

How to Overcome a Trading Losing Streak

Many traders want to give up or switch systems during a losing streak.

But how do you know if you should you quit or keep going? 

In this episode, we give you the simple checklist that you should review during a losing streak to get the answer.

The answer is simple, but it isn't always easy. But if you do the work, you'll have a very good chance of trading success.

Read the Transcript:

Hugh: Alright, Walter somebody wrote in and they have the age-old question of: “My trading sucks. What can I do to improve?” This guy is losing for like three months or whatever, lost a big chunk of his account; where does he go from there? 

Walter: First of all, do you have a system? That would be my question; sorry, I jumped the gun there. If you can't write down the conditions to an entry and the conditions to an exit of a trade and you don't have a system. You are just flying blind, friend.

Hugh: I call it the swag system, wild-ass guess.

Walter That's it and people ask me too. They go, “Have you ever just you know look at the charts and take trade and just kind of go off?” “No. I have to have it fit into a box that I know has made money in the past.” So do you have a system, number one. 

Number two, if you have a system, see if your entry is any good. The way that you see if your entry is any good is, whatever your entry conditions are — the indicators or the pattern or whatever — see where the market goes three, five and ten candles after your entry; that's a really good way to see if your entry rules on average suggest what's likely to happen next.

Is the market up three candles later after a buy signal, five candles later, ten candles later? If you go through that and your signal is good then the last thing and probably the most important thing where the most work will be, would be in the exit. So the easiest way for most traders to make more profit with their strategy is to simply wait for more profit.

I know it sounds crazy but instead of going for those one-to-one trades, what if you went for three to one or, four to one or, five to one. Your win rate will typically go down but the overall profitability usually goes up. What I mean by that is, if I have a strategy that's one to one and it has a you know fifty-nine percent win rate, if I move that strategy to two to one maybe I don't have the fifty-nine percent win rate anymore; maybe have a forty-six percent or forty-three percent win rate but I'm actually now making more money. 

So every hundred trades, I have forty-three — let's say, it's forty-three percent. Every hundred trades I have forty-three winners — and those winners make eighty-six R and then I lose fifty-seven R. So, eighty-six minus fifty-seven is, whatever that is. Twenty-nine, is that right? Something like that. I make more money than I would have if I had the one to one where I had a fifty-nine percent; that's key for a lot of traders but you’ve got to make sure you have a system first.

Make sure your signal is good then on the back end, use trailing exits. Use aggressive targets; split it up. Maybe go two to one and then have an aggressive trailing exit or whatever but really that's usually where you can make the most gains. It is on the exit and everyone focuses on the entry. It's usually not filtering out bad trades or whatever with the entry. It's the exit usually.

Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.

At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.

So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.

Hugh: I actually tested to see how far the price went on each trade so I called the max R. How far it would have gone if you just left it alone and you just left the stop loss there? Sometimes that can give you some good ideas of where to put your next profit target.

You can see fifty percent of the trades went 3R. Sixty percent went 6R or whatever it is. You can kind of guess, not guess but you can kind of use the data to see where you might be able to get more profits out of the trades.

Walter: Yeah and that would work really well with a fixed exit, right?

Hugh: Yeah.

Walter: Exactly, that is exactly right. I've been working with a trader. A really interesting guy who, you know how he builds strategies, he's very unique because he doesn't really get stuff from other traders. 

He kind of just looks at the charts and comes up with ideas. “How did you come up with this strategy?” He's like, “Well, I just look at the charts and I look for the big moves and then I look for what happened before the big moves. So what I'm trying to do is backwards engineer those moves.”

Hugh: It's cool.

Walter: Yeah, it’s really cool. I think that's something that we all do in the beginning but then we kind of get down the rabbit hole of Stochastics and you know moving averages. We get away from that simple approach but it works really well for him.

I think that's something to keep in mind. Just because it's on a website, doesn't mean you have to trade that way or just because you read it in a book. In many ways you're better off just going your own way; using your own approach because it's going to make sense to you. You're unlikely to throw it away. It's easier to throw away someone else's idea.

Hugh: That's a good point. I wish I started that way but I know it wasn't possible. It wouldn't be possible because we're always looking for that teacher or whatever to help us out and for good reason sometimes.

Walter: People spend a lot of money on universities. I mean, your whole life you're taught you know. You've got teachers from when you can start talking you know. It's kind of ingrained in us.

Hugh: Yeah, that's true. Okay, cool. Thanks, Walter.

Walter: See you!

Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.

Enter the Monthly Contest

We give away a trading prize every month, so be sure to enter to win.

You can win by doing one or more of the following:

• Leave a comment on YouTube
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Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.

The giveaways can include books, coaching sessions, trading tools, or surprise gifts.

It will usually be something that will help you improve your trading psychology. 

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