5 ways of handling a drawdown

Learn how to reduce your losses and don’t get trapped again

Yeah we know, a strong down market can get you unprotected sometimes. So if this last slump caught you unprepared, follow these basic rules for handling it and recover your precious money

1 — Don’t gamble

It is natural to think that such a down market will be followed by an uptrend, and feel the urge to increase your position to immediately recover your losses. But don’t be fooled, it is not always like that. If you open a position based on guesses, you are not trading, you are gambling. Rely on consistent signals and indicators, don’t gamble.

2 — Follow your trading rules

It doesn’t matter how many books or trading tutorials you read, if you forget all of them on hard times. Set some clear trading rules and stick to them, mainly in down markets.

3 — Don’t trade based on FOMO

Don’t trade on big candlesticks, trade on trends. Identify your trendlines, draw them and stick to them! If you’ve made losses, stay away from small timeframe charts. Zoom out and take a look at the big picture.

4 — Consider taking a break

If the market is getting too much on your nerves, take a break. Go out for a walk, enjoy your friends and family, practice a bit on a paper trading platform and when you are ready for being rational about your trades, then come back.

5 — Reduce your risk in case of consecutive losses

I know that usually after some losses, your immediate feeling is to raise exposure in order to recover fast. This is the worst you can do, because usually your first trades after losses are done by emotion, not strategy. So the best you can do is to cut your losses until you come back to a successful wining rate and confidence.