How to overcome bad periods in Trading

Bad Periods in Forex and Stock Trading? Sometimes it can be stressful.
You have worked an entire month, long hours at the computer and you end up with a loss instead of a profit. I totally understand that it may be frustrating, but this is the most important part to master, if you want to succeed as a trader.
You may have the best strategy in the world. You may have solid money management rules, but if you lose your cool when bad periods happen, you will never have a career as a trader.
In Trading, there is no space for over-trading. There is no space for revenge-trading. There is no space for over-sizing.
You can be lucky many times, but the one time you are not, you blow up your account and you need to start all over again.
If you are still struggling with this, after bad periods, you can act on 2 areas:

PSYCHOLOGICAL
How many months can you live keeping the same lifestyle if you had to stop working today?
This question totally changed my career as a full-time trader.
I was obsessed with building a trading balance that could allow me to live off Trading. I never took a cent from my profits until I reached a decent amount.
At one point in my career, I realized the importance of having a kind of security capital. An amount that I could just keep there, ready to use in case my trading career would end today.
I’m 32 and I’m still working to build my security capital. At the moment, I could have the same lifestyle for at least another 5 years, without working or having any source of income. This contributes a lot to reduce my stress when facing negative periods in Trading.
I have been trading since 2007. If I have a month with a profit of $10,000, I’m not going to buy a car and I’m not going to have holidays in a super 5-star hotel, because I know that my next month may be negative.
Money Management is a fundamental part in trading and in life.

NUMERICAL
I wanted to call the second area “numerical”. There are two simple rules to keep the variance lower:

Have a risk-to-reward ratio near 1:1;
Focus on short-term trading.

It is no secret that the higher the risk-reward ratio, the harder it is to win the trade. This means that you can face long periods without winning any trade.
Also, focusing on short-term trades, allows you to open more trades, which usually contributes to keeping a lower variance. It is important to always follow your strategy, without over-trading.
I’m not suggesting only having a risk to reward ratio of 1:1 and be a scalper or a short term trader; I’m just saying that if you have problems with handling bad trading periods, you should try that.

Two books that helped me to strengthen my mindset are:

Trading in the Zone, by Mark Douglas;
The New Market Wizards, by Jack D. Schwager.

Many traders underestimate this problem and think that if they are not successful, it is only because they don’t have a good trading strategy.
Forex Trading, as well as Stock Trading, is not only about having a good strategy. It is also about discipline, it is about patience and it is about mindset. You should work on that just like you work on building a good strategy to beat the market.

Stay focused.

Federico

Trading Psychology