How to Bounce Back After a Losing Streak in the Market

In the stock market, everyone has losing streaks from time to time. But how do you know if it’s a “normal” losing streak or a “debilitating” losing streak that will cause you to lose all the money in your trading account? How do you get back on your feet after a run of bad luck? If we aren’t careful, our trading profits can quickly “melt away” on the market if we let our emotions get in the way.

In today’s lesson, I’ll tell you what I’ve learned in my 15 years as a trader about how to deal with losing streaks on the market. No matter how you look at it, losing streaks are never pretty or fun, but if you understand them well, they shouldn’t hurt your long-term success as a trader.

First, know the “nature” of losses.

To get back on your feet after a string of losses, the first thing you need to do is understand how losses work in the market. Now, you might be wondering what I mean by the “nature” of losses.

Well, it’s pretty simple: a trader can have two types of losses: a “normal” loss and a “emotional” or “emotionally-caused” loss. So the first thing you need to ask yourself about your losing streak is, “Were these normal losses or emotional ones?”

A normal loss is one that is a normal part of your trading edge or strategy from a statistical point of view. This means that over a series of trades, even if you are consistent and disciplined, a certain percentage of your trades will be losers. You already know that there is no way to win every time. If there were, everyone would be a billionaire. So, you should know that normal losses are a part of any trading strategy and will happen.

A loss caused by emotion or by being too emotional is called an emotional loss. This means a loss caused by over-trading, which can be caused by greed, anger, revenge, etc., or a loss that was bigger than you are comfortable with because you risked too much because of greed, overconfidence, or revenge (trying to “make back” lost money). These kinds of losses are dangerous because they can lead to long losing streaks that wipe out your whole bankroll.

So, now that you know how market losses work, the first thing you should do is talk to yourself honestly and figure out if your losing streak(s) were caused by normal losses or emotional losses. If it’s because of emotional losses, you need more help, so keep reading.

Second, know that your trading advantage takes time to show.

A big part of getting over a losing streak is realizing that a single loss or even a string of losses doesn’t matter in the grand scheme of your trading career.

As I said in the first point, losses are a normal part of any trading method. Another thing about this kind of loss is that we never know when it will happen over a series of trades.

For example, let’s say that you make 100 trades in a year (this is just an example). Now, think of those 100 trades as a jar full of blue and red marbles that are all mixed up together. If you reach in without looking and pull out a marble, you don’t know if it will be blue or red, do you? Of course, you won’t know until you look at it.

Now, let’s say that blue marbles are trade winners and red marbles are trade losers. If your trading method is successful 60% of the time, then 40% of the marbles in the jar will be red, which means you lost. So, if you trade 100 marbles, you can expect to get 40 red ones back (losing trades). But when you make a trade or pick a marble out of the jar, you never know if it will be red or blue until after the fact. In my article about the key to last trading success, I talk about this in more depth.

For the purposes of today’s lesson, the point is that your trading strategy or edge needs a large number of trades to make you money, and it’s normal to have strings or streaks of losing trades within that large number of trades. You have a 50/50 chance of getting heads or tails when you flip a coin, but you could easily get 10 tails in a row. After, say, 100 flips, it will be closer to 50/50 heads and tails. So, you shouldn’t let yourself get too upset about a losing streak of “normal losses,” as we talked about above, and you should especially not get upset about a single losing trade, since it doesn’t matter in the bigger picture.

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Third, know that bad feelings are not going to help you make money again.

Next, realize that, as we’ve already talked about, if you give in to emotional losses and get too upset about a single losing trade or a string of losing trades, you won’t help yourself get out of a losing streak; you’ll only make it worse.

Even if you understand points 1 and 2, I know it can be hard to deal with even the most normal and statistically natural losing streaks, but you have to find a way to do so. You have to “swallow” these losing streaks and accept that they will happen. Then, you have to move on without getting upset. If you give in to the bad feelings that a losing streak makes you feel, you will lose even more money and hurt your trading mindset and account.

I like to look at things from a “big picture” point of view. “You have to see the forest for the trees,” as the saying goes. This means that you shouldn’t get too caught up in the details of something and should instead keep your mind on the bigger picture. This means that when you trade, you can’t let a losing streak get to you emotionally or mentally. Instead, you need to look at the bigger, longer-term picture.

Remember that your success and ability to make money will not be judged on a single day, week, or month, but over the course of a year or even longer. If you stay disciplined and stick to your trading plan over a large enough number of trades, you should win in the end, as long as you use a good trading method like my price action strategies.

Fourth, Take a break from the market for a while (if needed)

If you really have lost a lot of money because of “emotional losses” and your trading account is in bad shape, it’s probably best to take a break from trading and think things over.

Go back to the “drawing board” and figure out where you went wrong by using what you’ve learned in this lesson, my other lessons, and my forex trading course. Most importantly, you should learn from your mistakes and not let them hold you back.

As we talked about in this lesson, the first step to getting over a losing streak is to understand what causes them. Then, if you figure out that your losing streak was caused by something you were doing wrong (emotional losses), you need to make a plan to fix what you were doing wrong. This usually starts with learning more about trading and getting a solid, in-depth trading education to make sure you know what you’re doing on the market and trust your trading strategy.

If your losing streak was just a series of “normal losses,” then stick to your trading method and keep trading. I always like to think that a normal losing streak just means I’m getting closer to a winning trade or my next winning streak.

I hope you enjoyed today’s lesson and learned how to deal with market losses. As traders, we have to deal with losing trades and learn how to handle them properly, because losing is a part of winning, as cliche as that may sound.

“If you don't find a way to make money while you sleep, you will work until you die.”

- Warren Buffett

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