Coping with Drawdown

I have been getting a few losses in a row, am finding a bit of doubt watching my trades going on.
can anyone think of some books or anywhere else i can get help to overcome anxiety like this.

Are you live trading or demo trading? I have not read any books on dealing with the emotional aspects of trading…

Do you have a trading plan, a method, defined entry and exits, defined stop losses? Having a solid trading plan, and a defined trading method should help with the emotional part a little bit.

You just have to learn to deal with it. You can read as many books as you want but until you experience the feeling of losing money and confidence then don’t know what it’s like.

If you have faith in your system and thought process behind each trade including risk/reward then it’s easier to keep your emotions under check.

Also I see emotions as a good thing. Thrive off them!

Yea, i am trading live, i trade off the 34 ema, basically when it crosses i open and place Sl / TP at the next S / R Lines.

The more you fear losing a trade, the more you are going to close your mind off to opportunities in a market environment.

Read ‘the disciplined trader’ by mark douglas, and you will start to look at your winning and losing trades differently.

Another great trading psychology resource is Brett Steenbarger. He’s got a couple of books and a blog (TraderFeed). He taking a break from the blog posting, but there’s loads of good stuff.

Try not to think about the losses individually…Assess all you trades after say 25 completed trades and then decide if you should change something in your trading plan…

Be prepared to lose most of those 25 trades and have the satisfaction of following your rules when you put on those trades…

Reducing risk per trade makes it easier to deal with losing…But don’t make this a trade by trade decision…

Easiest way to cope with drawdown is to not have it in the first place.

Hi, Read “trading in the zone” by mark douglas, this book should be manditory for all traders.

I also have had a bit of a draw dowm this month, have now reviewed the situation and modified my trading plan. I run a demo along side my real account, i advise you to do the same if you can, this is a valuable feedback tool that will indicate the difference between your system and your mindset, this is called a profit gap. You have to learn how to close this. My demo shows a profit this month, this means that its me not my system.

To combat this i am going to lower the leverage and trade every time my edge appears. After 10 trades i will review the situation again.

I know why this happened though, i had had solid gains for 8 weeks and i started to become protective of my account, as a result i tried to pick and choose the trades i took, this is a double random and the results are erratic and usually not good.

Yeah Trading in the Zone is an awesome book. very helpful in keeping u focused.

Some verry nice books here.
But just as IndiTrader said.
Stick with your trading strategies otherwise you’ll never know if you have it right or not.

Extended drawdown is something most people will have to deal with if they aren’t looking to mitigate it. The market does have cycles and each cycle has a certain condition. If you’re an intraday trader, you might want to look on the daily chart to see what type of macro-conditions produces the best results for you and work on finding a way to identify these so you’re not entering on improbable days. In a serial system, it could be step #1. You haven’t seen drawdown until you’ve seen 18 losses in a row (that was my longest drawdown which actually ended yesterday, so I’m happy :D).

wow! 18 losses, one certainly needs confidence in a system to keep going through that, i hope you recoupe your losses soon.

Its very easy to end up in a vicious cycle when trading, that is you see your edge but dont take it. It works out without you, then your edge appears again but perhaps not quite as clean as the last. You then take this trade and it losses, then the edge appears again and you dont take it because of the loss, it works without you, and so it goes on and on. This is what i call double random, ie. you are selecting a random outcome-at random!

thats why i use a demo account, every time i see my edge i place a trade in it, it may also be live as well, but some wont be. if the demo account is growing more than the live, you know its not your system that isnt working, its you.

obviously you cant do this if you are scalping, unless you have 2 computers and have a mouse in each hand! but something to consider if you trade longer term.

wish you all the best.

hoff

That seams a remarkably low figure if your referring to the system you described over on the other thread. If you dont mind me asking how many trades have you taken so far with this system ?

Total: 157
Winning: 28
Losing: 129
Average Win: 12.8R
Average Loss: -1R

I don’t see how that figure is “low”. Eyeballing my spreadsheet, my other lowest drawdown was 13 trades.

Forgot to add, this is since February.

My gut reaction was that it was very low, so I decided to check it out further. I monitor my systems using an application that I developed that helps me assess if they are generating returns within predicted statistical boundaries.

To be honest, without digging into source code I cant remember how it works exactly, its either using some simple probability theory or possibly just monte carlo simulation, but adjusting the win rate down to 0.18 suggests that there’s a possibility of up to 25 consecutive losers over 150 trades.

Regardless of the implimentation it’s always seamed to work OK with the systems I use it on.

I’ve just thrown together a quick spreadsheet to model this, I only ran the simulation 3 times, with 150 trades each time. In the first simulation the max number of consecutive losses was 18, the second simulation 16, and the 3rd simulation 26 consecutive losers which is pretty close to what my software suggests might happen. Maybe I was unlucky and got an extreme result in the first 3 tries, but it something you might want to look at. Its easy enough to write a bit of code, simulate wins and losses and count the consecutives and plot some sort of frequency distribution.

Just ran another 5 runs and got 20,14,16,17 and 22 consecutive losses. By the time you get up up to 500 trades, there’s a probability of over 30 consecutive losses, and its 35 consecutives by the time you get up to a thousand trades.

Its obviously not a problem as long as you have a plan to deal with it, but its useful to do the analysis up front and be aware of the possability.

I find statistical resampling of live and back tested trades really usefull for figuring this kind of stuff out.

When you trade your demo account does it include the spread, and is the price feed identical to your live account ?

i have a demo account it does have slightly different spreads, i dont know about the price feed, but im usually looking for 100-300 pips on a trade about 10 trades a month, so i think a couple of pips difference wont matter. if it was very short term trading, 10 pips ect, i guess spreads would be important. The idea is simply to illustrate the difference betweenmy edge and my emotions.

Ie. last month i underperformed my edge so to speak.

hope this helps.

hoff

So you are trading a real and demo account but are not taking the same trades at the same time? I don’t get it. If thats the case, then of course you are going to have little differences in results. There is always the random factor in the market. Also, I believe statistically speaking even if you pick and choose trades, as long as they fit your “entry signal” it should still give the same result (i.e. win percentage/reward amount) in a set amount of samples.

So your looking to make between 1000 and 3000 pips per month from only ten trades ? Thats a hard target to meet consistantly, if you could do that you would be able to turn $100 into $1,000,000 in about a year, I’m not trying to say its impossible, but it is a very high expectation.