How do you manage risk and position size during losing streaks?

1 Define your risk tolerance

Before you enter any trade, you should have a clear idea of how much you are willing to risk and lose. This is your risk tolerance, and it depends on your trading style, goals, and personality. Your risk tolerance should be consistent and realistic, not based on emotions or greed. A common rule of thumb is to risk no more than 1-2% of your account balance per trade, but you can adjust this according to your preferences.

2 Use stop-loss orders

Stop-loss orders are essential tools for protecting your capital and limiting your losses. They are orders that automatically close your position at a predetermined price level, if the market moves against you. You should always use stop-loss orders, and place them based on technical analysis, not on arbitrary numbers or wishful thinking. For example, you can use support and resistance levels, trend lines, moving averages, or indicators to set your stop-loss orders.

3 Reduce your position size

One of the simplest and most effective ways to manage risk and position size during losing streaks is to reduce your exposure to the market. By trading smaller amounts, you can reduce the impact of each loss on your account and your emotions. You can use a fixed percentage or a fixed dollar amount to determine your position size, or you can use a risk-reward ratio or a Kelly criterion to optimize it. The key is to be consistent and disciplined, and not to overtrade or chase losses.

4 Review your performance

Losing streaks can also be opportunities to learn from your mistakes and improve your trading skills. You should review your performance regularly, and analyze your trades objectively. You should look for patterns, trends, strengths, and weaknesses in your trading behavior, and identify what works and what doesn't. You should also keep a trading journal, where you record your entries, exits, reasons, emotions, and outcomes of each trade. This will help you track your progress, spot your errors, and adjust your strategy accordingly.

5 Maintain your confidence

Losing streaks can also affect your confidence and motivation as a trader. You may start to doubt yourself, your system, or the market. You may become fearful, frustrated, or angry. You may lose sight of your long-term goals and vision. To avoid these negative effects, you should maintain your confidence and optimism during losing streaks. You should remind yourself of your past successes, your trading edge, and your potential. You should also practice self-care, such as taking breaks, exercising, meditating, or seeking support from others.

6 Follow your plan

Finally, the most important tip on how to manage risk and position size during losing streaks is to follow your trading plan. Your trading plan is your roadmap to success, and it should include your goals, rules, criteria, methods, and indicators for trading. You should follow your trading plan strictly, and not deviate from it based on emotions, impulses, or external influences. You should also review and update your trading plan periodically, and test it on different market conditions and scenarios.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?