Slumps!! I’ve heard plenty of theories over the years on how to end a trading slump. In my experience, breaking out of a slump rarely requires making any big changes.
Let me use an analogy to explain. In baseball, when a player goes 2 for 30 at the plate, they will usually take extra batting practice. Those guys have been playing baseball all their lives, so it’s not like they suddenly forgot how to hit. But often it’s the minor adjustments — shifting their weight a bit or adjusting their stance by an inch — that helps them get back in the groove.
Or think about that old superstition about guys who have been left out in the cold in the ladies department. To stop a cold streak, go to a bar and identify — okay, okay. Let’s keep this PG. There might be children listening.
Anyway, back to trading. In trading, streaks are very common. I don’t care who you are — at some point, if you trade for long enough, you’ll go on a massive hot streak and you’ll hit a massive wall. You know the wall, right? We’ve all been there. You run into a streak of bad cards that seems never-ending. Reload sellers at pivots. Downgrades or shelves on overnights. Getting short on a Fed cut. Putting on too much size in the wrong spots. The list goes on and on. “Dear lord let it stoppppppp!!”
The worst part is that helpless feeling. Your only goal is to just stop the bleeding. Of course, God isn’t going to help you with your positions. It doesn’t matter who you pray to, nobody is going to make sure that you’re not getting stopped out of your position for a $0.20 loss. Another reality is that slumps happen to everyone that puts on risk. Don’t start thinking that there’s a dark cloud over your home, that will just make matters worse. You’re in a slump, it happens to all of us, and you’ll get through it.
Remember that the market gods only have one goal, and that is to detach you from your money. To them, your slump is like a New Year’s Eve party. Coming from a guy who hit a massive slump from 2001 – 2003, I know the mental part can be brutal.
So here are a couple tips:
- Scale down your tier size – You simply can’t push the action playing cold cards. I typically scale down to about 1/3rd size. This buys time to work out some of the kinks.
- Go back to basics – Start looking at thousands of charts on multiple time intervals. Stocks usually trade with long memories. Focusing on the fundamentals and looking at the big picture can help you get a positive mentality back.
It all comes down to adjustments. This is why the theory of trading patterns becomes flawed. Markets consistently change, so what worked last year might not be working anymore. Trading cycles are common. And your trading is never as good or as bad as you think.
There’s no reason to get frustrated. Easier said than done, I know. But you don’t need a 360-degree overhaul of your process. Sometimes just a little tweak here or there can give you the key to bust your slump and get back to profitability.