Are you experiencing a continuous flow of losses? Do you feel that you have tried everything but nothing seems to work? Don’t worry, every trader gets to experience this sometime in their journey.
When it comes to trading, not every opportunity will work out. Some will end up in losses. This is because as traders, we have no control over what the market does. All we can do is identify patterns and control our actions. So what do you do when you experience a continuous drawdown?
Here are 6 questions to guide your decision making process in order to recover from a drawdown:
- How am I trading?
- Am I applying my strategy?
- Am I being patient?
- Am I following my rules?
- Am I flowing with the trend or going against it?
- Am I applying proper risk management?
Notice how these questions are all about you. This is because the key to success is and has always been within you. Whatever you are looking for is not only external but also internal. The whole business of trading is based on the process of decision making.
Decision making can be influenced by a number of factors including emotions. Let’s look at the questions above in more detail to understand how to make proper decisions when facing a drawdown.
How am I trading?
This question brings awareness to your trading method. When you are aware, you can identify the repeated patterns in behavior that lead to certain actions. This can also give you an idea of your emotional state when trading. One of the major factors that influence decision making is emotions. Practicing mindfulness is essential for traders.
Am I applying my strategy?
Formulating a strategy that works for you is one of the most time consuming things in trading. However, it is worth every effort. This is because when you develop your own strategy, you understand it’s ins and outs. It’s strengths and weaknesses. You know when it will work and when it will not. There is no shortcut for this. Ensure you have a strategy that is easy to follow and act upon. This way you have data based evidence that you can help you improve your trading. Most traders don’t have this. They act on impulses and emotions and have no way of knowing where or how to improve. This is why most traders are stuck in the loop of jumping from one strategy to the other looking for the best strategy.
Am I being patient?
As a trader who has developed a strategy, are you waiting for the right conditions that align with your setup? Or are you trying to predict the market? If you are a trader who understands price action, it becomes easy to get lost in the market movements. This can sometimes be overwhelming, which eventually leads to poor decision making. Being patient also means following your plan when you are in a trade and making necessary adjustments that are logic based instead of emotion based.
Am I following my rules?
Every trader should have pre-set conditions that guide them when making a decision on which position to take. One of the best guiding mechanism is ‘if…, then…’ conditions. For example, if the primary trend is bullish then there is a pullback (short term bearish), you can identify the Lower lows and lower highs for that bearish mitigation cycle. Then set the condition, ‘if the recent lower high is broken, then I’ll wait for a pullback and take a long position on the origin demand zone. ‘ Setting such conditions eases your decision making process and makes following your rules easier.
Am I flowing with the trend or going against it?
As traders, we sometimes have conflicting beliefs about the direction that the market is taking. This is common especially during market reversals where traders are unsure whether its a pullback or a reversal. During these periods of uncertainty, it is essential for traders to be patient. Wait, don’t be a trader that chases the market, you’ll end up losing.
Am I applying proper risk management?
When it comes to risk management, it is not just about setting the stop loss. It’s also about planning your trades; entry and exit strategies and also being aware of your emotions before, during and after a trade. All these factors go hand in hand in mitigating risk. An imbalance in any of them could impair the decision making process which in turn could lead to financial losses.
Finally, don’t be in a rush to take any trades before you have answered these questions. They will bring clarity to your thinking process and help you make proper decisions. Remember, there is an undefined amount of opportunities in trading and if need be, take a break from taking any positions and use the time to learn and understand yourself. Rushing and wanting to be right will only lead to more frustrations.
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