How to Handle a Trading Drawdown the Right Way

This episode breaks down what a real drawdown looks like vs when you’ve actually lost your edge
you’ll learn how to stay consistent with your model, control risk, and keep your psychology stable when losses start stacking

if you’ve ever questioned your strategy mid losing streak or felt the urge to switch things up, this will reset your mindset and bring you back to execution over emotion

Transcript

SPEAKER_00 0:00

Welcome back everybody to the Stoic Trading Psychology Podcast. I am FX Telepath Kevin. I've been trading for over six years now, and in this podcast, we will be going over how to deal with losing streaks. I have seen this a lot lately due to the market conditions. There's a lot going on at the time of recording this podcast. We have the war with Israel and Iran and Donald Trump, you know, he's very inflammatory, and this is not meant to be a political statement at all. But anybody, whether you like him or you don't, I'm not going to get into my opinion, but whether you like him or you don't, you know, we cannot deny that he is very inflammatory, whether he's speaking, whether he's tweeting on Truth Social or whatever that app is, uh, he can be very inflammatory, and it can cause your trades to go into drawdown. You can it can cause your entire account to go into drawdown, it could wipe out profits. So we're going to be discussing that in today's uh podcast. And just want to let everybody know right off the hop that this is somewhat normal. I mean, even in non-inflammatory market conditions and even in not just these not market conditions at all, when everything seems to be fine, drawdowns are normal. Um obviously, again, with everything that's going on, it makes it more likely. This is why I've been telling my members that the members in the Discord group that you have to be extra aggressive with trade management, meaning if you know Trump's going to be speaking in an hour from now and your trade's at a two to one profit right now and you're looking for a three to one, maybe put your stop to to break even or bump your stop loss up with price to lock in some profit because you never know, you know, when the market is going to take a dive due to a tweet or uh a news event or whatever. So there's things that we can do to manage these drawdowns, but it's it's very important for me to say right off the hop that it's normal, okay? It's not out of the question. And the big problem that everybody thinks drawdowns are crazy because you know, your f name your favorite online trading guru who it's like they're always winning, right? And it's like they made 50 grand today and then 80 grand the other day, right? That's all nonsense. Uh, hopefully, you guys have been following my my podcast and my channel for a while now to know that you know these people are not gonna name names, but they are clearly lying and they are clearly psychologically manipulating people. So those by following these these gurus and and stuff that are showing their PL, which can easily be fake, by the way, by following those people, you get the wrong idea uh of what trading is. Everybody thinks, you know, they see in the amount of videos I've seen where the thumbnails like$50 into$50,000 or$100 a day, they see these thumbnails and these videos and they think that, well, that's gonna happen to me. And number one, it's not gonna happen to you. Number two, they're pretty much straight up lying, anyways. Um, it's very if you just take those results,$500 into$50,000, which is like a very classic one I've seen. Think about the percentage return of that. Um, if you made 100% a year, you know how long it would take you to get to 50 grand. I'm not a math guy, but it would take a long time. So there's no growing a small count, there's none of that. I've talked about it many times in my podcast where you have to have a good job. I always recommend uh to take trading in the mindset of this is going to be side income for me, this is going to be some money I make so I can invest it long term and build a portfolio. So um I I again I've said it before, you need to have a solid job and treat this like a side business, and you need to understand that you're not gonna make those returns. And it's always funny too, where it's like these these trading gurus, they they post their PL every day, and then like then the one day they're always making 50 grand, 50 grand a trade or whatever, which is hilarious. And then, oh, for transparency, I'm gonna show one of my losses, and it's always like a$2,000 loss, and then the next day, oh, back to$50,000. So it's just funny. Um, hopefully you guys know better by now to not be following those people. It is a massive red flag. I had somebody message me the other day saying, Why don't you share your PL? And I'm like, Well, because you shouldn't trust that. Um, you shouldn't trust anybody's PL. That can easily be faked. I had an argument with one of the members saying, he's trying to tell me that PL can't be faked, and broker statements can't be faked. Uh broker statements are definitely a little bit harder to fake for sure, but even live low even live broker logins, easily faked, or you can just you can pick a specific point in time where you're profitable and just show that. Um, you can easily edit pages and refresh the page. Like I'm not gonna get into detail on that, but just look it up. Look on YouTube, you know, how these gurus uh fake results. It is so easy. That's why I always tell people, um, you know, they ask, why should I join membership? Why should I subscribe? Well, because all my analysis is here on YouTube, and the one thing about forecasting on YouTube is that I can't go back and edit a YouTube video after the fact. Once the video is live, it's live. So people can if I had a a forecast a couple weeks ago or a couple months ago or even a year ago, and it all turned to to crap and it was completely wrong, you can go confirm that for yourself. You can look at my forecast, compare it to the charts. So that's the kind of thing you guys should be following there. Not these fake PL hindsight analysis and all that crap. It's just it's to psychologically manipulate people, and it gets you in the wrong mindset for when you go through these drawdowns because you're expecting to be as good as these guys, and again, they're not even let's let's just for the sake of the argument, let's pretend that their trading results are completely real. Well, they're they've been trading for years. Why would you expect to you know to do as good as them? And again, it's it's it's not legit. Everybody, everybody who's thinking for more than two seconds can understand that it's not legitimate. So the problem is the they they think everybody thinks that they need to they're gonna get these results, and that's really not the case. I've said many times, you know, two percent a month is really good. Um, I know that sounds terrible to a lot of people, but that's why two percent a month, if you have a good job or you can keep funding your account, take it slow, eventually maybe you could risk more than one percent and turn that two percent into four or five percent a month, then you're really good. That is the way to approach um trading. So um as far as experiencing a drawdown is completely normal, there are definitely some things you need to ask yourself, you know, before like you don't want to just keep trading if you if you're in a and if you're in a five if you're in a two percent drawdown and you know that you've traded profitly before, it's really not a big deal. If you start to go into a five percent drawdown, which I've been in many times, you have to take a step back. You have to ask yourself, am I following my rules? Are these the same setups every time? Is there randomness with my my setups? Um, so number one, you have to if you have a back tested strategy, you have to ask yourself, am I following the same thing I did in that back test? And the problem with back testing is sometimes I don't know, it just seems back testing to me is not the greatest thing. I always found it better to kind of live back test where it's like over weeks you see what works and what doesn't by recognizing patterns, but you definitely have to ask yourself if you go in these drawdowns, if you are following your plan. Um you have to assess are are these losses just with my normal um my normal trading or are they not? There's a great um I forget the name of the website, or it's winrate.io. So you can go into winrate.io, winrate.io.com, I believe. Check it out. Um, you can go into that uh website, put in like a rough, so let's say you've back tested and I don't know, just whatever stats you have. Let's just say you're looking for one to three trades, 40% win rate, or something like that. Just I'm just coming up with random uh stats um on the fly here. So type punch that in into winrate.io winrateio.com or whatever it is, just Google it. And then it'll simulate. You can put 500 trades and it'll simulate the all the drawdowns that you could possibly have. It'll show you every single trade. You could literally start off a strategy where it's like you go into a 10% drawdown immediately. Um, 10% drawdown is pretty significant. Um you know, with certain strategies, there will be like your average drawdown and then your max drawdown, roughly, right? It's all rough estimates. But these are things that you have to do, and using that tool, using that website, will definitely help you build confidence because then maybe you're sitting through that uh five, six, seven percent drawdown. You're like, okay, this is just normal, and then you have to also, like I said, assess whether you're following your rules or not. And then obviously, if you go back and journal journal your trades, which you should be journaling your trades 100%, if you're not journaling your trades, especially at the beginning, it's gonna be very difficult to get this data because it's like, am I following my rules? Well, I don't know, I don't have any screenshots of the trades, I don't have any data on the trades. Well, then how can you how can you gamify this? How can you, I don't even know if that's the right term, but how do you check to see if you're doing what you did in the back test? It's it's nearly impossible to do that unless you have an insanely good memory or you can go back and look at the trades, it's gonna be very difficult. So um you definitely need to go back and check. Understand that these drawdowns are definitely reasonable, reasonable 100%, especially in these market conditions. Make gotta make sure we are following our rules exactly. Another thing to consider is are you hesitating on valid setups? Uh that's another thing, too, where maybe you go in a 2% drawdown, you're scared, you don't pull the trigger on the next trade, and that was actually a completely valid setup that's within your rules. That hesitation can kind of screw you too, right? Because maybe you're in a 2% drawdown, you should have made a two to one in that trade, you're now you're back at break-even, and instead you're still at two minus two percent. So that's another big thing is the hesitation. Um, we also have to make sure we're not increasing our trade frequency, unless, you know, if there's a lot of trading setups, then then perfect. Um, there's many things you have to check, right? If if are you day trading, I had a one of the members trying he took a loss and he was day trading the Asian session, which I do not recommend. So there's definitely there's normal drawdowns, and then there's things where it's like, you know, I'm I'm sure if let's say you're in a 5% drawdown, which is one of the which which is uh one of the members just said, I'm in a five percent drawdown. What do I do? That's why I'm kind of making this podcast. Um you have to ask yourself, are you increased has the trade frequency increased? Are you trading during a session you shouldn't be? Right? Um, and and trading is very difficult because there's times where it might look like the the normal setup, but then maybe the zone that we trade supply and demand here. Maybe the zone didn't have as good of a move away as you thought, so you can always compare it to your profitable trades. I always recommend having a trading journal of your profitable trades. Like there's many things you can do in your journal, uh, your profitable trades and your losing trades, and then put them side by side and compare. Do they look similar? What can you take from these trades where you can start to you know recognize uh a pattern? So I'm I'm kind of drawing a blank here on where to go from here because it it's it's really just about confidence and experience. Uh, if you haven't experienced a drawdown yet, I mean it's coming 100%. Uh there's no ifs, ands, or buts about it. You're going to have a drawdown. So there again, normal drawdowns are normal, but maybe in a 5% drawdown, maybe 2% of that, two losses out of that could have been avoided because maybe you're trading during the Asian session, which you shouldn't be. And if you're a swing trader, I will sometimes my setups will trigger during the Asian session, and I don't mind that because I'm trading on a one hour or an H4 chart. I'm not really looking for the volume that uh day traders are looking for on a five minute, one minute, or a 50-minute chart during the Asian session, which is just really not there. So, you know, you have to ask yourself, are you doing everything that's right? And I mean, I'm I guess I can try to continue to go over that in this podcast without rambling on. But I'm I'm really just here to to tell you guys that it is completely normal. There's nothing we can do about it unless you are not following the rules. Maybe you're hesitating, uh, maybe the demand zone that you're trading didn't have that great move away. Maybe on one of the trades you forgot to um check the higher time frame trend to determine how aggressive or non-aggressive with trade management you should be. And then there's things like you know, these market conditions, like I was touching on uh at the start of the podcast. And these market conditions, wider stops are gonna be your best friend because you have to understand that emotions are gonna come into play on the charts, especially with Trump, especially with the war that's going on, economic data, all that stuff. So you have to kind of have wider stops in these situations. It just makes sense because I've seen many zones recently, as far as supply and demand goes, where price just wicks through the zone a little bit where you know your normal stop loss would be price goes off to your take profit. And obviously, it it there's been many times where it continues to fall, and you know, having your stop lower wouldn't have mattered, but I've seen that a lot lately. So that's definitely one thing you can do in these market conditions is just have a wider stop. But again, there's no pros, there's pros and cons to everything, there's no free lunch, just because you have a wider stop isn't gonna make you profitable. It's not like the holy grail, just have a wider stop. If you have a wider stop to your target, it's gonna be less risk to rewards, it's gonna be less profit margins. So you have to take that into consideration. It's not like oh my god, I'll just I'll just lower my stop. It's like okay, but then if if your stop is wider, then you will you will make less money as my as the market goes in your direction, with you know not the move away you're expecting. So obviously, if if you're going if you're targeting the high, the previous high from your zone, you have a wide stop. If you have a really tight stop loss, like a normal stop loss, maybe that's a three to one trade. If you widen your stop loss, maybe it's only a two to one trade. So there's pros and cons to everything, it's not just a free lunch, it's not just oh, it's the holy grail, I'm gonna lower my stop loss. Well, if everybody did that, you know, you wouldn't you're you're going to be your your your profit margin will be decreased based off if you're targeting a high or not. But if you're just trying to ride with a trend or something, having a wider stop loss really is is a good idea. And then like I said earlier, you know, aggressive trade management is also fine as well. And there's many ways that you can do that. And by, you know, for example, let's just say you're maybe let's just say you usually look for three to one trades. Uh if price goes one to one, and you know, Trump's speaking in an hour, or even if he's not, you know, he can come out with a tweet or whatever, maybe put your stop to break even, maybe take 75% of the trade off and let the rest ride, and you can still turn that one-to-one into like a two-to-one, three to one if price really goes in your direction, because just as likely as it's it is that you can, you know, price can go in the opposite direction and stop you out, it could shoot off to your take profit as well. Or and then you know, the hybrid trade management is what really good, which is what I always kind of prefer to do, you know, unless I'm sleeping and uh during the London session. But you know, hybrid trade management is great. Move your stop to break even, take 80% off, bump, bump your stop loss up with price. Because maybe Trump tweets something and then price really starts to shoot off in your direction. Um that's great, and you want to try to capitalize on that entire move. So move your take profit up or get rid of it, just bump your stop loss up with price. Um, so there's many ways that we can we can be doing this, and you have to you have to understand again it's normal, but again, there's things that we can do, and I and I've given you guys a few things here today to to help you understand that it is there's things we can do, and then there's things that are out of our control. If you are if you look at your last five trades where all of them are losses, and there's nothing you can identify, you win over it, you compared it to your previous winning trades, and there's nothing you can do over it about it, and then let's say even if you had a wide wider stop, based on what I'm saying, maybe you still would have lost, anyways. Then guess what? You just gotta keep taking the same trades, and it's just a normal drawdown. Um, but again, analyze everything. If you haven't journaled your trades yet, you gotta start journaling your trades because this data is definitely needed. Okay, so hopefully this video helps, this podcast helps. Uh, I know it's a quick one, but I don't want to be blabbering on, and there's really not much to it. I mean, I could sit here all day and be like, oh, are your demand zones like this? But again, it's it's losses are completely normal. Drawdowns are completely normal, just like you'll have, you know, a crazy upswing, too. Maybe you're up 7% in a week. Eventually that's gonna come back down. You're gonna be towards a mean again. Okay, so just like we can go through a big drawdown, we can go through a great winning streak as well. And we gotta be we gotta be careful of those too. Maybe I'll do a whole podcast on dealing with a dealing with a winning streak because maybe people get overconfident and they start to overtrade, and then that's how you really start to do damage to your portfolio. Um, so there's there's upswings, there's downswings, there's times where we're not gonna be taking many trades at all. And look, if you just maybe you just find that even with the wider stop losses, you're still being stopped out due to these market conditions. Okay, then maybe take a week off, reset. And if you are too bummed out, if you're too pissed off about this losing streak, this drawdown you're in, and you feel like you're gonna make bad decisions by overtrading or chasing setups, trying to get it back, then you need to step away 100%. And then that's see how this all it all comes back to having a good job, so you don't have to rely on trading results. Because if you have a side business but you can pay the bills with your normal uh income from your job, then who cares if you don't take a trade for a couple weeks because Trump's going crazy or Israel's going crazy, whatever. That's it's completely fine. That's why you again there's it's trading is more than just trading. You have to be stable, and being stable kind of revolves around having a good job, making sure your bills aren't paid because next thing you know, you don't have a job, you're in a 5% drawdown, rent's due. You're gonna start taking bad trades just to try to get it back, and that's dumb. You should not be doing that. So, um, anyways, guys, we are going to wrap it up here. Any questions at all? Feel free to hit me up on Instagram or whatever. Um, I don't really check the comments on this podcast, but hopefully you guys are enjoying it. Didn't want to blabber on too much. I kind of feel like I did, but trying to do more of these. Hopefully, you guys are enjoying them. If you have not, uh, subscribe to me on YouTube. Check me out, FX Telepath. You can follow along with my forecasts every single week. I'll see you guys in the next podcast.