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Today, we did a Q&A session to address important topics pertaining to improving upon trading performance. Various topics were covered from trading psychology to risk management to strategy-related, as well as others.
One trader said they were doing well for an extended period of time, but in recent months had found themselves struggling and in a rut. All traders go through periods of struggling, but when it becomes pervasive and confidence gets damaged significantly there are steps which a trader can take in order to get themselves back on track. First things first. It’s a good idea to take a step away from the market and get ‘out of the fire’ and stop the bleeding. This can be a couple of days or longer, but a break is a good way to hit the reset button.
Then go back through and look at your trade history and identify the cause for the drawdown. It could be a matter of trading the wrong strategy for a particular market environment (i.e. range strategies in a trending market) or that you are making correctable errors such as using poor risk/reward or overtrading. Often times it can be a combination of both.
Once the problems have been identified and a solution has been arrived upon, it is good practice to ease back into trading slowly, with in mind that you want to start making good trades again and not an attempt to try and gain back all of the losses at once. After confidence has been restored, begin increasing trading size back to your normal levels.
We’ve written a guide for helping with confidence - Building Confidence in Trading. It’s a good read for helping not only build confidence but provides measures maintaining it as well.
Another trader asked about ‘time stops’. How long is too long to be holding winners relative to losers? Good question. While it is a good practice to be patient and let trades work out, there does come a point in time where a trade can lose its edge. Typically, on average you want your losing trades to stop out much faster than your winning trades reach their target.
If, for example, you are trading key reversal-bars then the trades should start to work relatively quickly and stops will get hit quickly upon invalidation of the initial trigger-bar. Same goes for a lot of trade entry-types. Breakout trades are similar as well, in that momentum should quickly pick up upon the crossing of a support or resistance level, and if momentum does show up the stop is likely to be hit soon after entering. If you find, though, that after entering the trades starts to drift for an extended period of time then the likelihood of seeing a positive return diminishes and exiting may be the most prudent approach. Stopping out quickly can be a good thing, as it frees up capital and your ability to focus on the next opportunity.
For the full conversation, please see the video above…
---Written by Paul Robinson, Market Analyst
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