Do you struggle through drawdowns?
Back in 2008, I was trading long only Mean Reversion strategies. As the market dropped, I bought more and more, until I was in a very deep drawdown. I had a margin call and was forced to close positions for large losses. It was painful, and for a while I quite trading.
But after taking some time away from the markets to process what had happened, I discovered some insights that helped me grow as a trader.
If you struggle through drawdowns, or haven’t yet experienced a drawdown so painful you stop trading, here’s 3 key insights traders can use to better cope with drawdowns:
#1 : Historical Perspective
Study the equity curves and drawdowns of successful traders or funds.
Understanding that even highly successful traders face drawdowns can provide a realistic perspective and emotional comfort.
#2: Accept The Inevitable
Recognize that drawdowns are an inevitable part of trading.
Just as we need to breath out so we can breath in again, we need to accept losses as a natural part of profitable trading.
This can help traders maintain a calm approach during tough times.
#3: Uncover The Lesson
As the saying goes “Things don’t happen TO you, they happen FOR you.”
Reframing a challenge into an opportunity can be a true gift.
What is this situation teaching me?
By applying these 3 concepts to my trading, I was able to change my perspective on drawdowns.
How can I improve next time?
Drawdown doesn’t have to be a struggle.
It can also be a positive experience that helps you grow as a trader.
Click here to check out the BST YouTube channel for more great trading content.
