Trading Under Pressure: Turn Losing Streak Around

Trading is a journey. And in a journey, there are ups and downs. Just when you think you’ve mastered the markets, a series of losses can have you questioning everything you thought you knew. We call these periods drawdowns. Ask any successful trader about their career, and they’ll tell you about the time when they lost 30% of their account in one week. Or how they had this wilderness period when nothing seemed to work. Drawdowns are not just inevitable, they are a core part of every trader’s story.

The difference between traders who ultimately succeed and those who quit is in how they respond to losing streaks, not by avoiding them. If you’re a new trader, your first significant drawdown can feel like the end of the world. It may seem like everything you took time to build just evaporates, you lose confidence, and you’re left wondering whether trading is really for you. But successful traders know that drawdowns aren’t just survivable, they are valuable.

Whether you’re currently in the middle of a losing streak or hoping to prepare for the inevitable ones to come, you are in the right place. In this article, we’ll share effective strategies to help you handle drawdowns, maintain psychological fortitude during tough times, and you can trade your way back to profitability.

What is A Drawdown?

Imagine your trading account reached $10,000 last month, the highest it has ever been. Now, after a series of losses, it is $7,500. That $2,500 or 25% decline? That’s a drawdown. A drawdown is the percentage decrease from a peak ($10,000) to a subsequent trough ($7,500) in your trading account. 

It’s the difference between a high point in your equity curve and a subsequent low point before a new high is established. Unlike a simple losing trade, drawdowns are a cumulative of all your losses during a losing period. While all traders experience drawdowns, the frequency and severity vary from person to person.

What makes drawdowns particularly challenging is how they affect the mind. When your account is at a new high, you feel invincible. But when you’re in a drawdown, there is this invisible pressure to recover and get back your lost glory. However, this leads to poor decisions that would only extend your losing streak.

Types of Drawdowns

1. Statistical Drawdowns: These are the normal ups and downs that come with any trading strategy. For instance, if your strategy wins 60% of the time, the wins and losses won’t come in a perfect pattern. You can have several losses in a row, purely by chance. But that doesn’t make your strategy less potent, or mean it doesn’t work. Think of it like flipping a coin. Out of 10 times you flip it, you can have tails turn up 4 times in a row, while heads turn up for the remaining 6 times. These drawdowns are expected and unavoidable, even when your strategy is working exactly as designed.
   
2. Systemic Drawdowns: These happen when the market environment changes in a way that makes your strategy less effective. For example, if your strategy works well in a trendy market, it could fail when the markets start moving sideways. Or in another case, where your strategy works best in non-volatile conditions, it could take another turn in highly volatile periods. It’s just like the weather. You might have a good coat that keeps you warm in winter, but in summer, that coat would cause you to overheat. The coat is not bad, but the environment is just different.
   
3. Behavioural Drawdowns: These are caused by your own psychological reactions and mistakes. Because your emotions are high – fear, greed, and frustration, you begin to deviate from your trading plan. Examples include revenge trading, overtrading, or abandoning your strategy because of stress. This is often the most damaging type.

When you understand the type of drawdown you’re experiencing, you know the right response to it. Statistical drawdowns simply require patience. Systemic drawdowns might need strategy adjustments. Behavioural drawdowns might need you to be more psychologically disciplined, or just take a break from trading.

What causes losing streaks?

Losing streaks happen for several reasons, especially due to statistical or systemic drawdowns. It is inevitable and expected. However, when it comes to behavioural drawdowns, it is the traders’ doing, and is totally avoidable.

1. Loss Aversion: This happens when you feel the pain of a loss much more than the joy from a gain. You could make a $3000 gain, but you would feel more attached to a $3000 loss. The loss probably bothers you more than the joy of finding money. As a result, you hold on to losing trades, hoping they’ll “come back”. At the same time, you rush to cash out winning trades too quickly because you’re afraid of losing those profits. At the end, you gain very little and lose a lot of money.
   
2. Recency bias: This is when a trader is thinking now. They are not thinking of the past or the future, just the present, and that limits their ability to make sound judgments. For instance, after losing three trades consecutively, you might think your strategy is broken, even when there’s a track record of success. You’re also blinded to what could be. As a result, you might abandon a perfectly good strategy just because of a few recent bad trades.
   
3. Revenge trading: This happens after a heartbreaking loss or series of losses. You might want to get back at the market for taking your money, so you abandon your strategy and take more risks to win back your money as quickly as possible.
   
4. Analysis paralysis: Too much information could become paralyzing. You get stuck researching and overthinking every decision. You keep looking for ”one more piece of information” before trading. You’re afraid of being wrong, so you can’t pull the trigger. As a result, all the good indicators pass you by, and you’re left with the bad.
   
5. Overconfidence: After a winning streak, there is a tendency for you to feel like you’ve figured out the market. Because of this, you begin to take more risks and abandon your strategy altogether. The unfortunate thing is that the market has a way of humbling people like this.
   
6. Risk management failures: Apart from psychological reasons, your risk management failures could also contribute to your losing streak. Risking too much on a single trade, having no proper stop-losses, overexposing yourself to correlated assets, and failing to adjust to volatility can all contribute to drawdowns.

How to deal with losing streaks and trade out of a drawdown

1. Take a break. Stop trading

Sometimes, the best trade is no trade. When you’re in a drawdown, your emotions might cloud your judgment. So you need to take a step back to have some breathing space. Give room for clarity. That time away would help you regain perspective. Even if it’s just for a few days or weeks, take it. It would help reset your mind. Use this time to reflect, not worry. And also focus on stress-reducing activities – exercise, walks, meditation, and anything that takes the thought of the markets away.

2. Objective Assessment

Before you get back into action or make any changes. Take a step back to analyse what’s really happening. Look at your trading journal and ask yourself:

• Is this drawdown statistical? Is it acceptable within my strategy?

• Am I actually following my trading rules, or have I been deviating?
• Were there any fundamental changes in the markets that affected my strategy?
• What patterns can I identify in my losing trades?

This helps clarify what might be the problem from what actually is the problem. Any decision you make should be based on data, not emotions. Doing this might reveal that your strategy is fine, but the market conditions have changed. Or that you have been unconsciously breaking your own rules.

3. Go back to demo trading

After you have checked what the problem might be, test your hypothesis. Demo trading removes the pressure that comes with real money. At the same time, you are staying engaged with the markets. With this, you can:

• Test your strategy under real market conditions
• Practice discipline without risking your money
• Experiment while making adjustments to your approach
• Rebuild confidence as you see positive results

You can set specific goals for your demo trading period. You can say “10 consecutive trades following my rules exactly.” Or “achieve a certain win rate.” Once you’ve met your goal, you can go back to live trading.

4. Trade markets with lower volatility

Markets with high volatility tend to cause more financial and emotional swings. The lower, the better. 

• You can trade more stable instruments temporarily. 
• Major forex pairs often have lower volatility than exotic pairs
• Blue-chip stocks typically fluctuate less than small-caps
• Longer timeframes generally have smoother price movements

With this approach, you can stay active in the market without battling intense price swings. That gives you some emotional and financial stability and the confidence to rebuild.

5. Decrease your leverage

One of the most effective techniques to recover from losing streaks is to reduce your position sizes. Trade smaller positions, maybe 25-50% of your normal size. This significantly reduces the financial and psychological pressure you may face. Even if you are right about how the market is going, smaller positions like these prevent large losses. Then you can gradually increase the size as you improve your performance.

6. Protect your capital

During drawdowns, your primary goal is not to make a profit or to recover your money. Your number one goal is to protect your capital. Implement stricter stop-losses, like a maximum daily loss. Once you’ve reached your maximum loss, stop trading. You can’t recover if you don’t have capital left. During difficult periods, it’s better to play defense than offense. 

7. Seek Community Support

During drawdowns, emotions often get high. You could feel isolated and tired, too. This is why you need a community. Connect with other traders who understand your challenges. Join communities, groups, and forums where you can share experiences. You can find a mentor who has walked this path. As simple as talking about your struggles and challenges is, it helps clarify your thinking. You can get emotional support and practical advice. When you hear others share about their experiences, it can give you both strategies and hope.

Drawdowns may have a silver lining

When you’re facing a drawdown, your greatest enemy isn’t the market, but your own mind. The psychological impact of a series of losses can trigger destructive behaviours that would only worsen the situation. But then, drawdowns are also painful and lonely. However, they can also provide valuable opportunities for you to grow. 

It helps you refine your system. It can build your psychological fortitude and help you master risk management.