A series of losing trades causing a significant reduction of the account balance is known in trading as the drawdown. Most people, however, call it a “losing streak” or simply “bad luck”, chucking it off to random factors. Meanwhile, your success in trading is the furthest thing from “random”.
Can we do something to actively deter a losing streak? Absolutely! Here are some practical tips that can help you protect your account.
Tip 1: Diversify your assets
Savvy traders usually have a list of 4-5 trading assets that differ by type, level of volatility and time of availability. That way if some abnormal market situation is affecting the asset they were trading, they have several safe options to fall back on.
Remember: don’t be afraid to switch assets if you feel like the trading is getting out of hand and unpredictable. Even if you Plan B asset shows less volatility, it’ll still probably save you more trouble.
Tip 2: Know when to step back
We’ve said it before and we’ll say it again: set a limit on the number of trades you place a day. If you can tell you’re entering the danger zone with 3 to 5 unprofitable deals in a row, it’s a good idea to remind yourself about a limit you once set and step back. That way you won’t make rash decisions and you’ll be able to get back to trading later with your capital still intact.
Tip 3: Skim the profit
The best way not to blow through all of your account balance? Withdraw at least a part of your funds. While the trading is going in your favor, make it a rule to withdraw 30-50% of the profit. You’ll thank yourself later.
There is an overriding motif to all of this: don’t think of trading as gambling, where everything is up to chance. Be mindful of your choices, because in the world of finance you’re the one who makes your own luck.
