Most common problems which traders face:
1) Try to ensure that trade does not end up making losses for which they try to adjust stop loss , exit abruptly or sit in a hope that trade will come back in his favor
2) If the trade ends up in losses, they stop believing in their rules and either hesitate taking another trade or simply switch the system and end up losing capital. This makes trading stressful and frustrating.
Losing streak is a series of continuous losing trades. Losing streaks are unavoidable and there is no system with 100% win ratio . The number of losing trades or the length of the losing streak is dependent on your system’s win-ratio.
The easy way to address this is to do a thorough back-testing of your system and also realize the probability of losing streak or losing sequence based on your system parameters.
Have a look at the table below which summarizes the chances of a losing streak based on 1000 trades.
If you are a trend follower, then your win-ratio will be around 35-40% which means that your losing trades and the losing streak will be bigger.
For example, if your system has a win ratio of 40% (which is not bad at all), then you can expect up to 14 consecutive losing trades. So, understand your system and you will be mentally prepared to encounter those losing streaks and have the confidence to take the next trade.
Once you realize this, you will also not have the urge to make sure that the current trade does not end up being a losing one. You will realize that losing trades are inevitable and what is more important is to stick to the system parameters.
