Any participant in any market will inevitably have a losing streak. From the short term traders, the day traders as well as the long term investors will at one point (probably many more times) experience a losing streak. Statistically we know that this is an acceptable occurrence and something that is just a part of doing business. Psychologically though it is like a massive storm going through your head that can leave you an absolute mess. Losing streaks can cause such psychological pain that one may even consider changing their strategy, or even worse, to quit the game altogether. So the question isn't how to avoid a losing streak rather, how to handle it so you can maintain your sanity, and more importantly, your account?
It really bothers me when I hear financial gurus try and explain away the concept of a losing streak. The most common answer to any type of trader is to simply stop trading and take a step back. By pausing you can gather your thoughts, evaluate the damage and come back another day to try again. This, in my opinion is the worst possible advice you can offer. Especially if the advice is targeted at a newer, less experienced trader.
You see, the markets are constantly moving, changing and adapting to new news and information. There is a certain rhythm that it plays which allows you to join or play against in anticipation of a change in rhythm. That rhythm is something that every style of investor or trader learns to play with. If you walk away from the markets you lose touch of the current movements of the markets. A pilot doesn't take a break after a bad landing. He learns from the event and adjusts next time.
If you experience a losing streak it means that the markets are changing tunes and you haven't adjusted yet. If you walk away you miss the change. The best course of action is to reduce your size and continue to change with the markets. You can always add to a winner. With commissions so low these days you can continue to trade with very small size and build your confidence again. With this approach you can stay in the game and connected to the markets.
