Overcome Trading Drawdowns: The Art of Recovery
Trading can be a rollercoaster of emotions. One minute, you're on top of the world, and the next, you're facing a tough drawdown that seems impossible to overcome. If you're a trader, you know the feeling all too well.
But the truth is, drawdowns are a normal part of trading, and every trader will experience them at some point.
The key is learning how to recover and get back on track. That's why I'm here to share the art of recovery and show you how to bounce back from a drawdown and achieve trading success
What Is A Drawdown?
When you hit that drawdown period, it just means the market is not in sync with your strategy right now and it's going through some sort of change or a transition period.
This is normal for any strategy, the market conditions are not always going to be favorable.
Step 1: Cut Your Position Size
So what you need to do is first cut your position size.
This is important because it's the only way that you're going to be able to keep your confidence in tacked and still stay true to your trading model.
And by staying true to your trading model as well, it will create confidence in yourself and you'll feel proud that you're still sticking to your system.
Step 2: Reduce The Frequency
So the next step is decelerating the number of trades during this transitional period in the market.
So the second step should be to reduce the frequency of trades that you take.
And what I mean by reducing the frequency is now only look to take the very best setups. A+ Only.
So, therefore, when you do take the trade, there's a much, much higher chance of it working.
As well as this you are now not going to be taking lots of losing trades and losing lots of money when the market is going through the transitional period.
So that's why reducing the frequency is important.
I'm not just saying go for the best setups.
There's a logical reason why you're reducing the frequency, the market conditions are not favorable right now.
Step 3 Take Time Off, Rebalance
So another thing that you can do if it really does feel like a grind is you're giving out a bad frequency vibration, and what you're doing is just going to attract more of it.
When you are stuck in that bad vibration it's all you attract and therefore you will be more susceptible to making bad trading decisions.
So what you could do is just take some time off and go and do something you enjoy!
Use that as a release just to get back into balance, reframe your thinking, and then cut your risk, cut your frequency, and get back to it.
Because when you get into that drawdown period, that's where the real work begins. There's no shame in being in a drawdown and working your way through it.
It's the golden standard of the pros. If you can handle the drawdown, and keep trading your strategy, then you're far, far ahead and you will get out of it.
I know at the time it doesn't seem like it, but you need to get out of that mindset.
And that's why taking a bit of time off will help and then cutting your frequency size accordingly.
And doing the previous methods will do wonders for your confidence and help you to be able to stay true to your trading model.
When in a DD it's all about staying in the flow state or the groove.
And cutting your size and reducing the frequency, taking time off to recentre will be the way to do this.
(I breakdown a lot more about ways to increase confidence here)
Be Proud Of Yourself
When you're managing risk and implementing the right risk measures don't see it as emasculating just because you are trading smaller and less frequently.
If anything, it's empowering. You're doing what most cannot bring themselves to do.
The whole goal when you're in a drawdown is to now trade smaller, and cut your losses much quicker, so it doesn't have a big impact on your PNL.
But most importantly, it's about getting that confidence back. Because once you've got that confidence, there's no stopping you.
When your confidence is shot and everything just feels like a grind, you're just asking for trouble and all your emotional triggers are going to come into play.
So the best thing is to cut everything down, the frequency, the size, and keep that confidence intact.
Because trading is all about confidence. It's all about keeping yourself stable.
So I just hope that helped a little bit. And gave you some actionable steps to help with drawdowns.
Thank you for reading and I'll see you soon.
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