Our Maverick Trading team would like to share some thoughts and experiences that will hopefully help you out going forward. In our team's personal trading and from overseeing other traders, here are the common reasons that we see trading slumps:
- Personal Issues: Whenever we see a trader who has had good results all of a sudden get cold, this is the first thing that we think of. Many times, we have called up the trader and the first thing we ask is, "What’s different in your life?" They are always initially shocked that we asked, but then reply with a serious life issue such as, "I'm going through a divorce," "I started a new position at my work," etc. If you're going through a trading slump, take a look at your personal life and ask if this is a good time to be able to focus and spend the amount of time needed to succeed.
- Stops Too Tight/Volatility: This is probably the most common reason for trading slumps. Traders that use tight stops have terrible records during periods of volatility – which makes sense. They can easily go 0 for 10, which is frustrating. The way to see if this is the problem is to look at your last 10 trades and see if you would have had more than 50% winners if you didn’t get stopped out from volatility. If this is the case, then the fix is to either stay out until volatility decreases or take one-half or one-third initial positions with a much wider stop and leg in after that.
- Trying To Trade Your Opinion: Another common cause of trading slumps. We find this typically goes hand in hand with counter trend trading. For example, if you've been "convinced" that the FTSE Euro Top 100 Index (EUR) was going to go up over the last few weeks (April 2015) and all your trades were long EUR, then you probably had mostly losers. Instead of trading the market in front of you, you traded what you "knew" (believed) was going to happen. Throw away your biases and become a trader. Traders just trade price action. Nothing else. They have no bias.
- Wrong Market For Your Trading Strategy: Sometimes, the market just isn't conducive to your trading strategy. For example, the Maverick Trading team is mostly focused on trend trading and buying/selling breakouts, etc. So, when the markets aren't trending, this strategy just isn't going to perform as well as when the market is trending.
We saw this last year in forex from March to August 2014, when we basically had to grind out minimal profits during these months. We cut back our trading volumes and traded more news announcements to compensate. However, as we predicted, the markets are cyclical and can't stay at lower than historical volatility forever. Eventually the volatility came back and we had a great second half of the year. Look at the market conditions and ask if there are some changes that you can make to adjust your strategy to the current market conditions.
