Trading Slumps are one of the worst parts about this job. In my old life I installed HVAC equipment, furnaces, air conditioners, ductwork and the rest.
A bad day meant I got hurt, was too slow, or made a mistake I had to fix the next day. A good day meant just the opposite and maybe more.
If I put in a furnace on monday, even if something changed and I had to move it, the furnace stayed put. In trading, a good day on monday can be replaced by a bad day on tuesday. However, unlike my HVAC career, in trading, the money (furnace) can go and literally disappear. This makes the slumps in this profession vs others so much harder to cope with.
Unlike most careers where mistakes can be easily corrected or replaced, mistakes here can compound quickly and painfully, taking away days and even weeks of progress in mere hours. Unlike most careers where something is left behind to at least speed up the repairs, trading gains can be completely wiped out and a trader can truly be left with less than they started with.
It is for this reason that a trading slump is so hard to handle in trading. At this point in a trader’s career, there are some serious and tough choices to be made.
The trader that has established their plan, with the right backtesting and parameters set up before going live, can handle this slump with ease. This is what we talk about day in and day out.
The trader that has not established a plan, that had quick success and decided they were smarter than the rest, until they realized they weren’t. Those traders are the ones who are googling MACD right now, looking for that one missing piece that makes the plan fool proof.
That one missing piece that keeps them going until the next failure that the magic indicator can’t fix.
That sends them on a path of system jumping, guru following, slump sliding that never ends until they realize THEY have to change or they run out of money to try.
The key to getting out of a slump; is planning for the slump. If you know a slump should come in the range of 5% of your account, than you should not be worried until you reach 5% and then look to your parameters for when it’s time to re-adjust vs ride on.
The key to staying in a slump, is thinking you can out maneuver it. Every system has a weak point, when breakouts are strong, reversions are hammered. When pullback are strong, breakouts are broken. Every system takes the hits, but every system pays the bills when done properly.
The key is not jumping from breakouts to pullbacks just as the breakouts finished their slump and you didn’t know it.
If you’re in the slump, and you don’t know what to do, get to cash. Stop live trading and reassess. The market will always be there. Longevity is more important than the next trade. We are here to help if you choose, but trading through a slump without a plan in place is closer to gambling than professional trading.
If you’re in the slump and you’re plan says you have another 4% drawdown before you should do anything, stick to the plan.
When you plan for the slumps, you can get through the slumps.