Having a career as a day trader sounds awesome right? I mean, you basically roll out of bed, throw on some shorts and a tank top, click a few buttons, make your money, then hit the beach with beer in hand … right? Well if you believe that, I’ve got some oceanfront property for sale in beautiful Colorado and it’s got your name on it. The truth is that day trading as a career isn’t always flowers, butterflies and rainbow-crapping unicorns. As a trader you’re subject to the ebbs and flows of the market and sometimes it can become brutal. You need to constantly adapt your trading styles to account for a constantly changing market environment. As market conditions change, sometimes you'll end up in a trading slump and it'll seem like nothing you do can break you out of it. Every single trade you take goes against you no matter what we do!
You try different strategies, you trade different types of stocks, you play different patterns … nothing works. It’s just loss, loss, loss. Sometimes this can go on for days, weeks or months and it can seem nearly impossible to break the cycle. I’ve been trading long enough now to have gone through a few of these slumps and I understand how difficult it can be to get out of one. I get emails all the time asking me for advice on how to break trading slumps and I always find myself responding the same way. Most of the time a trading slump is relatively easy to get out of if you’re willing to practice a little discipline. Here are three ways to immediately break yourself out of a slump if you’re in the middle of one:
1. Accept Responsibility!
No, seriously. Quit bitching about it. Every email I get about this is mostly just complaining and making excuses about why the trader can’t do this or that. I even do it myself when I’m in a slump. I curse like a sailor and blame everyone and everything but myself. It’s the market’s fault. My software crashed. My internet connection died. I accidentally clicked the wrong button. The market makers screwed me. IT’S AN EVIL CONSPIRACY!
No. It’s not. It's really not.
Trading slumps are caused by mistakes, period, and excuses are the nails that build the house of failure.
Until you stop making excuses you’ll never break out of your slump. You have to take responsibility, admit you’re just in a slump and that it’s no one’s fault but your own, and realize that it is you who has to change. Most likely you don’t even need to make a drastic change either; it’s probably just a couple small things that need tweaking and you’ll be back on your game! So step one is to accept responsibility and quit making excuses about why you’re in a slump. Just admit you’ve been trading like shit and that you’ve gotta make a couple small changes in order to claw your way back to the surface. It’s liberating to admit this! Everyone has these slumps…it’s no big deal. The first step to solving a problem is admitting you have one, so start there!
2. Slooooow Down:
Trading slumps are mostly psychological. What usually happens is that you’ll have a string of bad trades that cause you to start doubting yourself and/or your strategy. Then you realize that you’re in a slump, so you figure you’ll just take a quick scalp and make some quick money to get yourself back into the game, but at the same time you’re going to be extremely cautious because you know one more loss will only make it worse and make you doubt yourself even more. So since you’re being extra cautious, you’ll stop out too soon and take a loss, then quickly jump to another trade and try the same thing again. This cycle continues over and over until you finally either go on tilt and blow your whole account, or you get lucky.
When you find yourself in a position where your options are either “get lucky” or “go broke”, you’re already doomed as a trader.
So, slow down. Just stop trading and stop looking for opportunities around every corner. There are typically only a few good opportunities each day anyway. Most traders have at least one setup, pattern, or type of trade that they absolutely love and would bet the farm on every time. It’s the one you feel most confident trading because you’ve seen it work a million times in the past. Its chart is visually appealing to you and it has every characteristic that you love. Slow down and wait for this specific trade. This is the slump buster!
Don’t try to home-run it, don’t try to be cautious on it, just play it like you normally would. Usually it will just be one trade and you’ll have to seek it out and trade ONLY that for several days to get yourself back into a winning mindset. One of the biggest reasons that I see trading slumps continue for extended periods of time is that the trader is simply trading non-stop, scrambling to find any possible little opportunity they can to make a little bit of money, rather than waiting for the one trade that they know will work.
Stop doing that! Be patient and wait for that one trade you know is going to be a winner. Oh, by the way, when you find it, it’s still going to be a loser and it's going to make you doubt yourself even more, because you’re gonna fuck it up somehow. It’s Murphy’s law and the nature of a slump. Don’t let this deter you. Stick to your guns and stick to hunting that one specific setup. It might take you a few tries to find the one that works but I promise you that soon enough, one of them will as long as you stick you your A+ setup only. NO EXCUSES!
3. Finish in the green:
Duh, right? To get out of a trading slump, you just start making money. This isn’t rocket science, people. Well if it were that easy then trading slumps wouldn’t even exist. This is like telling a depressed person "Just don't be depressed, life is good!"
What I mean when I say “finish in the green” is: once you have a guaranteed green day (i.e. REALIZED gains and no open positions), JUST STOP. It doesn't matter if you made $1 or $1 million that day, or if you’re green at 9:31am or you wait all day and stare at your screen doing nothing because you never see your red hot setup from step 2 above develop. Once your day is green, just stop trading. Take the day off. Take your dog to the park, go to the beach, go to the gym, clean your house, call your grandma. Hell, go spend some quality time with PornHub!
It doesn't matter what the hell you do, JUST STOP TRADING. The idea is to finish in the green, not have $500 in gains at 10:30AM, say to yourself, “Awesome, I’m outta my slump! One more trade and I’ll be back at breakeven overall!” and then proceed to give back all your gains and go red by the end of the day.
When you're stuck in a slump, being green and then giving it back and going red is psychological suicide.
I’ve seen it (and done it) so many times it makes me sick. When you’re in a slump, the key to busting it is not making all your money back, but getting yourself back into a winning mindset. You can’t do this without finishing at least one day in the green, at the close. The market is too volatile. If you’re green mid-day and keep pushing it during a trading slump, my studies have shown there’s a 110% chance you will give it all back and go red, perpetuating the slump (trust me, I’m a scientist, so I know because science and stuff). You’ve gotta have realized gains in the bank at the close so you can go to sleep feeling proud of yourself, and wake up the next day refreshed and ready to get back at it and do the same thing again. You must have this same mentality for at least a week or so, or longer depending on how long your slump has persisted.
Don’t try to make all your money back. Don’t even try to make a little of it back. Just forget it. That money is gone and there’s nothing you can do about it. Focus only on finishing green and once you’re green each day just stop. Even if it means making a stupid, small gain and saying F.U. to your normal selling strategy, that’s how you bust a trading slump. Prove to yourself that you can finish green day after day even if it’s only by $1 and even if it only takes you one minute to do it or one trade each day. This is a huge confidence builder and will deliver a Mortal Kombat style fatality to your slump.
When you’re in a slump, you’ve got to realize that it’s mostly in your head. The market doesn’t care or even know that you’re having trouble. Remember that every trader has slumps and any trader that tells you they don’t is a liar, period. It’s just the nature of the business. You can be incredibly consistent and incredibly profitable and still go through trading slumps now and then, so don’t feel like you’re less of a trader just because you’re in a slump. It just means you’re a real trader. To get out of it, you first have to admit that it’s no one’s fault but your own, then slow down and focus only on your one favorite setup, and the first instant that you see green, take it and run like hell.
I know it sounds weird to say you might have to abandon your selling strategy or change your plan mid-trade once you see green, but the psychological impact of finishing a day green even by only $1 is often profound enough to bust you out of a bad losing streak. So while of course you should only be seeking out A+ setups to do this on, don’t fall into the trap of giving back gains on a winning trade because you’re trying to get perfect 3:1 reward to risk or trying to milk every last penny out of your sell target. If you’ve taken a good, solid trade and it works immediately, fuck the reward to risk. Take the gain, stop trading, and close the day green. You can worry about the technicalities of reward to risk and whether or not the trade was “good” later on once you’ve got your confidence back.
Your main goal right now is to print something green in your account after being patient for a setup that you KNOW will be instantly in profit for you. No anticipation, no questionable setups, nothing like that. Trade the one you absolutely KNOW will work, and if you have any doubt whatsoever, let it go and be patient for “the one”. If you do this and it still doesn’t work, take a LONG break to clear your mind and try again in several hours or the next day, on the same type of setup. If nothing else it will slow down the losses. When all else fails, sometimes you’ll just need to take a week off to unwind and totally forget the market in order to clear your head, but when you come back, make sure that you’re still following these same three rules.
If you're in a trading slump right now, I hope this post helps you get your mojo back!
Until next time, happy slump-busting!