Overcoming Losing Streaks in Social Trading
How to overcome Draw-downs in Social Trading
One of the most difficult things for a trader to deal with in Social Trading is losing streaks. You had a good run, Adrenalin is running, and suddenly you experience situations with a high amount of pressure.
You start seeing a couple of red trades in a row. What happens next? You start to doubt whether your system is profitable. Now triggering another trade becomes harder than before.
At this point traders usually start to over analyze entry points, add new indicators and adjust their strategy and that can lead to even more losses.
Every successful trader fails here and there
Many traders on our Platform use a strategy where you can expect to have 50 loses in every 100 trades. Most traders get accustom to see a combination of red and green on their monitors, which is perfectly normal for Forex traders.
However, once your winners and losers come in a random order, losing or winning streaks are very likely to happen. Imagine how would you feel after 6 losing trades? Or after 11 unsuccessful ones? For most traders and especially new ones, opening a new trade at this point will be highly unlikely, although recommended.
The Trick is to manage your emotions
From our experience at Tradeo, when traders have real money on the line, emotions like doubt and fear start to kick in, and that’s when logic goes out through the door.
you do engage in some of the emotions mentioned above, it is likely that you will end up trapping yourself in a vicious cycle. This is because risky trading behaviors such as over trading or revenge trading are likely to make you lose again and, therefore, evoke the same unpleasant emotions and unhelpful thoughts that led you to it.
An effective way to manage these situations is by having proper money and risk management. Set your risk per trade to a level that is comfortable to you. For example, to 1 or 2 % of your trading capital per trade. In this case if your trading capital is $1,000 and you risk 2% per trade which is $20. So even if you have five losing trades in a row, you will still be down to $900 which is 10% draw down. Not so bad. This way it is easier to pull the trigger and open your next trade when your draw-down is 10% rather than 50%.
Social trading is not a sprint. If you’ve just taken a hit, stop trading for a couple days. You are probably not in the right head set to make proper decisions anyway. When you come back, look at your trading plan and your trading portfolio. Address issues as to what is causing the problem and make a decision to only trade when you are calm.