What should we do when we have a bad streak when trading in the financial markets?
Well, it is simple: you have to keep calm although this is easier said than done obviously.
This is related to all activities that require action.
It there is not action or some sort of dynamism there is no bad or good streak.
This term is easily associated with sports since it is very common for those who bet to experience very long bad streaks.
Although besides sports there is other activity where bad streaks are very common.
This activity is poker, where bad streaks are as many and as bad as you have them in sports.
Poker is another activity where a bad streak can break our nerves.
These two activities are normally associated with betting. However, what about financial trading?
A lot of people may think that trading is not the same; therefore it is considered by many people not to be betting.
The reality is that financial trading is indeed betting, just a bit more sophisticated.
This is because the behaviour we have when loosing is similar in any of these activities which means that we are talking about the same dog but just with a different collar as we say in some parts of Spain.
Bad streaks betting
Our reaction is similar in sports betting, poker or financial trading for the simple reason that those activities presupposed that you are going to take a risk guessing a possible outcome.
Example o bad streak
This is something that happened to a friend some time ago.
He had lost a lot of money doing trading.
However, it seems that it had not been enough and he continued trading. It seemed that the guy still have not understood what day trading was about
As for him the real culprit of his losses had been: psychology, discipline, wrong strategy, timing, and etcetera.
As a consequence and after accumulating some money in his bank account my friend decided that it was time to try his new trading strategies.
I remember, in one occasion, he was telling me about his new tricks: the Japanese opening in Nikkei, that apparently he had found an edge, because, “the Asian traders”, or China, or the Australian stock index, etcetera.
Apparently the guy had been studying and knew when he had to buy and when not.
Then, he told me that this time would not fail because he had a plan.
Well, I could not stay silenced and told him that I did not think his edge would work for the simple reason that the edge was only in his head.
He told me that he was sure he was right because he had studied.
To my surprise, when I saw him the next day he told me that he was going to open a binary options account to apply his strategy.
I told him that he would lose all his money and also in a quick way.
He laughed ant told me that no way.
Well, some days later I saw him with not very good humour.
I knew what had happened.
Effectively, his 3,000 euros disappeared in one night after a couple of days.
What did he do?
He started applying his strategy and had a couple of unexpected losses (I suppose that according to his system two losses would be something quite unlikely.
After those two loses the guy lost control and started to bet one time after the other in a long session of “trading” after which he ended up with no money in his account.
What happened to this man?
He lost control of his nerves.
This is how bad streaks work whether in sports, games or trading.
When you lose more times than expected some kind of nervousness takes control over yourself and despite you thinking that everything is under control, just the opposite is the truth: you end up being prisoner of the lower passions.
You start playing, betting or trading without knowing that the time goes by.
Time goes very fast in a situation like that.
Bad streaks in life
This is why we should always stop doing these kinds of activities when they start going wrong.
Curiously this guy had told me about this issue: his system prohibited him trading more than two times a day and therefore there was no way he could lose control.
However he could not help himself and fell victim to the lower passions.
This is why we should face these activities with iron discipline.
It is complicated to dominate our ego though.
When does trading stop being a bet?
In reality there is no difference in those terms because even when we bet for the long-run we are “guessing” that the asset is going to be higher some years from now.
However, the same as professional bettors, when you do medium-term trading or long-term investing our probabilities of winning become bigger, for the simple reason that the markets follow some cyclical long-term patterns not so difficult to learn. There are some markets, for example, that are more time bullish than bearish, like stocks.
All in all, do not let yourself being dominated by bad streaks.
Switch off the computer and go for a walk, it is the best thing you can do.