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Losing Streaks and optimism

Losing streaks and flat periods are a reality of trading. Just as sports teams have losing streaks, so do traders. A trader may take many trades and face loss after loss before scoring a win. Trading requires persistence in the face of seemingly constant setbacks. It takes a rare person to be able to pick oneself up after a fall, ready to face another potential setback with enthusiasm. As traders and active investors, this is exactly what we must do. We can never be sure if the next trade will be a winner or a loser. We can only employ our system knowing that the ‘edge’ it has will prove profitable over a large sample of trades if we maintain a disciplined approach and execute the next trade everytime, regardless of the outcome of the most recent trade.

If you want to be successful as a trader, you must develop an optimistic way of thinking. It is quite common for traders to face a lot more losers than winners — depending, of course, on trading style and methodology. It takes persistence in the face of defeat for you to keep going until you hit a series of winning trades or the market returns to trend. Our cautious optimism ensures that we will keep following the system even despite a run of losses or a flat period in the market. We can NEVER be sure when the poor run will end and a new winning streak will start, so we just have to keep plugging away. Only by consistently applying the system can we hope to hit a winning streak. Sitting on the sidelines and watching a winning run unfold is both psychologically and financially damaging.

By the same token, you also don’t want to be overly optimistic. Whilst extreme pessimism is negative, a measured degree of pessimism will allow you to be realistic in your evaluation and assessment of everything in life. This is a particularly important trait to possess when evaluating trading system performance and measuring the results. Keeping it ‘real’ and ensuring that all trades are included in the stats – all winners and all losers will ensure much more realistic results when the system is traded with your hard earned money.

Novice traders can be overly confident and overly optimistic – expecting success to come their way simply because they have decided it should! The key to success in trading is to have a long term view of the market, realistic expectations, patience, balanced optimism and a healthy level of pessimism – just to keep it all in check.


  • Percy Allan says:

    Well said Gary. If one’s got an edge (a system designed to beat the market over time) then every loss is simply one step closer to a win. Ranging markets don’t last forever. They usually end with a bang – a large trend breakout either up or down.

  • Gary Moulton says:

    I know that it is not directly associated with your latest post but I have just watched the first 2 videos featuring Mark Douglas and I am blown away at this mans insight. I have read “In the Zone” but I found his presentation extremely enlightening and cannot wait to view the rest of his video series. This is a must view series for SWS members.
    Congratulations Gary for making the Mark Douglas video series available to us.

  • Ray Hocking says:

    Hi Gary
    I’ve just started to read Learned Optimism by Martin Seligman. Some people subscribe to the theory that this book should be given to every child at birth. I think retaining a positive outlook in times like these is an essential trait for good trading.


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