Okay, now with the introductions out of the way, I will explain why I thought this to be the perfect time to start sharing some of my thoughts. This particular moment in my trading career is a very interesting and insightful one for me, for as you may have guessed by the title, I am currently losing money. Yes, you read that correctly, I am losing money. I am in a drawdown. 8 of my last 10 swing trades have been losers, with the last 5 being consecutive.
Bummer huh? Yep I know. But why is that important? Why is it worthy of your time to keep reading the ramblings of a losing trader? The simple answer is because it is O K. I am okay with it. I knew it would happen at some point, I enjoyed 15 months of mostly consistent profit, a drawdown was inevitable. I had expected it and I had prepared for it. That’s one of the huge advantages of extensive back testing. Just as important as knowing how well your model should perform when it works, is having a clear understanding of what to expect when it doesn’t. From my testing I knew I was due for a break. I also know the average number of losers to expect on this break, or what my worst case scenario might look like. Likewise, I can also tell you, with historical certainty, that this drawdown will indeed pass, and that long term the strategy does work and that it is profitable. And traders, having that knowledge, seeing that data in black and white, that is truly peace of mind.
Now don’t get me wrong, I do not enjoy losing money, and I definitely lack the stomach to sit and watch my trades bleed away tick by tick. But thankfully I have protective stops on my platform, and a power button on my monitor so that I don’t have to. Everything else is simply internal, it’s how I deal with it, or more accurately, how I choose to deal with it that matters. For me I made those choices long ago, and I wrote them down and made them part of my trading plan. I’ve rewritten my plan many times, always trying to better defining the “if, then” syntax of my strategy. In one re-write I tackled this ominous eventuality of a major drawdown and added an entire appendix on the topic. While I won’t recite the whole thing here, the basic gist of it is this:
1) Don’t panic… Remain calm! Check the account balance against your money management guidelines and adjust risk exposure as necessary.
2) Keep trading… You have to keep trading. Your system works. It has been back tested, and forward tested to heaven and back, stay in the game, keep cool, and keep trading.
3) Trade smart… Trade with your head not your heart. Don’t get emotional, don’t get angry, don’t over trade and try to take revenge on the market, it won’t happen. Just stick to your rules and it will all work out.
Pretty simple right? That’s all there is to it traders. If you’ve done the proper work ahead of time, the testing, preparation, and planning, then all that is left to do is keep ourselves in check. History repeats itself, so as certain that drawdown’s will occur, I am just as certain that they will end. This is may first, but it will not be my last, it is all a part of trading, and I am okay with that.
So why were those trades losers? Just because they were… No one was at fault here. Not myself, not the market, not some central bank with a sinister plan to take me out. They were losing trades, plain and simple. It happens all the time, just that this time the losers all got lumped together, that’s all it is. I have gone over them with a fine tooth comb, and every one meet my rules and every one was a valid entry. Over all these were good trades that went bad, it happens, it is what you do next that matters most. For me, I choose to deal with it, learn from it, and to move on to the next trade. Thank you traders, be well.