3 Hacks to Survive a Losing Streak!

Trading is a game of random outcomes, i.e. no matter how good your analysis is or how sophisticated indicators you are using, in the end, the movement of the stock price is always unpredictable. Hence, there are times when even the best of traders have to go through a losing streak either due to challenging market conditions, a lack of discipline etc. which separates the wheat from the chaff.

If you are facing trouble surviving a losing streak, here are 3 practical tips that can take your trading to the next level.

Optimize your position size

Optimizing position size simply means the optimal quantity of shares/contracts you should be trading with respect to your trading capital and risk tolerance. Many traders go bonkers with their position and end up taking a hefty loss. As a general thumb of rule, never risk more than 1% of your total account in a single trade.

This helps to curb your losses when a trader is taking several consecutive hits. Surely, a bigger position size could also result in a bigger profit, but one big trade might not create a fortune for you, but can surely throw you out of the game for a long time.

Think in Probabilities

This is a mental model which is not only apt for trading but also in other areas of life. Thinking in probability means you are thinking more in terms of what is the likelihood of an event occurring rather than stressing upon the surety of its occurrence. For eg. let us assume you have an accuracy of 50% which means 5 out of the 10 trades go in our favor.

However, that does not tell you which 5 ones would be the winner. The series of winning and losing trades is totally random despite knowing the accuracy. Once you start to think in probabilities, you would always be conscious of that there is even a probability of having to go through 5 straight losses to get the next 5 winners.

Diversify across strategies

Many of your would have heard of diversification across asset classes to minimize the concentration of risk which is true and should be done. However, a trader should also have various strategies in his/her kitty to take care of changing market conditions.

A practical eg. would be, while you might be a good trend follower but still, if you have a system/strategy to reap profits in a rangebound market, that would help you to minimize your losses when the market actually turns to rangebound, by offsetting your losses in the trend-following strategy.

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