Have you ever been in the following situation?
You pick a trading strategy, you make nice profits and then, for some unknown reasons, you start losing. You take one trade after another and the strategy stops working.
That is a very common thing that happens will every trader. I am trading for more than 9 years, and you know what, this week I got 4 losing trades in a row.
In this article, I will explain to you what to do in such a situation and how to deal with losses.
Look at the losing streak that I had this year.
I shorted EURJPY, EURNZD, GBPJPY and USDCAD.
I bought AUDJPY.
All the trades a rule based, they were strictly taken in accordance with my trading strategy.
AUDJPY, EURJPY, EURNZD, GBPJPY trades closed in a loss and USDCAD closed on breakeven.
It is a losing streak of 4 trades.
Does it mean that a trading strategy doesn't work anymore?
What 90% of traders do when they face the situations like that, they start trading with a new strategy. They win, they face a losing streak and the cycle repeats.
The truth is that there is no trading strategy that does not lose occasionally.
Losing streaks are the part of the game.
For the last 5 years, my strategy shows 64% average win rate.
It means that among 10 trades, the first 4 can be the losing ones and the 6 remaining can be the winners.
It is the game of statistics.
Now, imagine the potential distribution of winners and losers in 100 trades.
If you know that your strategy is historically profitable, if you back tested that, and it proved its efficiency what you should do, you should keep trading that.
The more losses you face, the higher is the probability that the winning streak is coming.
Each losing trade will increase the chance that the next one will be finally profitable.
With so many years of trading and faced various drawdowns and losing streaks, what I learned is that if you keep trading your strategy, if you keep trusting that, the market will always give you a chance to recover.
But if you stop, if you drop the strategy once you face a losing streak and pick a new one, you will simply miss the winning streak.
Repeating that cycle at the end of the day you will lose everything.
That is the hard truth about rule-based trading.
