How To Bust A Trading Slump

Are you having trouble remembering the last time you had a winning trade? Are you ready to quit this gosh forsaken business already and do something less stressful like air traffic controller or lion tamer? Don’t give up just yet, at least not until you read the rest of this article.

Trading slumps happen to everyone, even the super gurus that brag how they never lose. I would love to tell you that I’ve never had a trading slump, but unfortunately I’ve had more than my share. I read a great saying once: there are two types of traders- ones that have had a trading slump, and ones that will. Trading slumps always seem to come at the most inopportune time. After a winning streak or just when you feel you’ve gotten the a grip on how the market works. When everyone else around you is making money, and you aren’t, you just feel like less than dirt and can’t believe it’s happening to you. You were doing so well, and then out of nowhere…whack you can’t pick a winning trade if your account’s life depended on it.

The first thing you have to ask yourself is if the reason for your slump is related to your straying off the beaten path. Have you decided to ditch your trading plan for no apparent reason? Maybe it was too “boring” and you heard about a new technique that was the next great thing so you decided to try it out without getting a proper education. Those are simple fixes if they are the root cause. I’ve deviated from my trading plan over the years (and I write a new one every year) enough to know that it’s easy to get sidetracked and look for something new and shiny that can easily distract you. The solution is to recognize that you are not following your plan and get right back on track. Of course, if you don’t have a plan to begin with, you need to write one, now. Don’t worry, I’ll wait.

There are other reasons why you could be slumping in your stock trading business, and they may not be as obvious. Do you have an extra amount of stress in your life currently? Are you having problems in your personal relationships? Is your significant other or child sick? Was there a recent death in the family or of a close friend? Do you have a big event coming up like your daughter’s wedding or son’s college graduation? Do you run another business and are there issues with that? Maybe someone is suing you for 50 million dollars because you are trying to earn a living and they won’t let you. If you are distracted, you aren’t going to trade your best, no matter how strong of an understanding you have of the stock market trends. Before you start blaming the market, look at yourself. Are you getting enough water during the day and eating good food and exercising? It may sound hypocritical coming from a 365 (at the time of this writing) pound 43 year old, but I will tell you this: I trade MUCH better when I eat right, drink clean water and get any exercise at all.

The challenge comes if the slump is from something outside of your control, such as a perceived paradigm shift in the market. I don’t believe the market necessarily changes, but it can definitely alter its character from time to time. For example, gap fades were my bread and butter for years. For the past several months, I’ve been super cautious with these trades, almost to a fault. The gaps have been small, or I just don’t “trust” them as much relative to the overnight action. There’s nothing worse than seeing a perfect fade and not being a part of it, but since I’ve struggled with the trade, I’ve shifted my focus to other areas that I find more reliable. That’s just me, you may be doing well with gaps, and are having issues elsewhere. Each trader is unique in certain ways, but not as many as you would believe.

When I do find myself in a slump, I follow a step by step process that has been a reliable way to bust them in the past. Follow along for a simple cure to what is a hazardous situation for your trading business.

Makes sure it isn’t you. This is contradictory, because in the end it’s always you, but I’m referring to a few paragraphs above. Is there anything that is causing an inordinate amount of stress in your life currently? If so, it may be time for you to take a break and allow those clouds to clear. Learn relaxation techniques and meditate, even if it’s just a slow counting to ten as you breathe in and out. Calming the mind will assist you in bringing back your focus. It doesn’t have to be a huge commitment or time consuming, but you should do something to help relieve stress.

Make sure you were actually following your plan. If you don’t keep a journal, then start or else you will have nothing to reference. I have two, one a black notebook and one a red one. Black is for morning, red is for afternoon. You can get more complex if you want to, but that method is a great way to start.

If you do have a trading journal go back and look at your trades. Are you sticking to you current plan? You may found out that you actually weren’t when you thought you were. Start following the plan and see if that changes things.

If you have determined it’s not a lack of discipline or outside stress and you are following your trading plan, then follow these steps:

Stop trading. Take a break and regroup. The market will be here when you get back, but as the saying goes, ”when you find yourself in a hole, stop digging.” Stop throwing good money after bad until you find the root cause of the slump. It’s not just going to work itself out; you need to put the work in. After all, it is your trading business, not a hobby, right? Go over your educational materials whether it’s the books, course material or videos you’ve trained with. Start again with the basics such as chart patterns and the 4 principles of price movement. You’ll be amazed at how many of the beginner material you’ve forgotten, or don’t give credibility to anymore in favor of more advanced methods. Here’s a fact: the basics are where the money is made and the advanced are just derivatives of them.

Rip up your trading plan. Yes, the one I just told you to write. Rip it up and start writing it again. My personal rewrite record is 3 in one year. Don’t try to beat it. Write it from scratch and make sure you are covering all the bases. Write out in detail the trades you are going to take, how much you are going to risk, the whole enchilada. I don’t care how long you have been trading and how well you “know” what to do, write it out, it will give you ownership of the rules.

Start back on the simulator. After you have taken a breather and you have redone your trading plan, come back to the market with paper trading using a simulator and following your EXACT rules. Don’t stick around too long on the simulator, but start there for at least a two sessions, more if you feel it’s needed.

When you start trading real money again, trade smaller. Get back on the horse and into a groove by taking baby steps. A few winning trades, even at this smaller size will do wonders to boost your confidence and get your head back into your business. From there, it won;t be difficult to get back to your regular size.

Do you have any unique ways to bust slumps? Leave your comment below.

Return to the home page for more articles on Stock Market Trends