Think Like A Trader Blog

Thursday 24 September 2015

The Curve of Death in Trading


Reading Time: 3 Minutes
The curve of death is something most people struggle with. It’s the real barrier that stops them from becoming a consistently profitable trader. You may jump from system to system, tweaking your methods a little here and a little there, but that curve of death is what destroys most traders.

It happens usually after a run of good results. Maybe you’ve had a great week, month, or quarter. Your equity curve is growing steadily and your trading plan is working a treat. But then the drawdown comes. A losing trade followed by another loser. You get frustrated. The next trade doesn’t go as expected and your profits for that week are suddenly wiped out.

Now what should happen at this point? Ideally, you ignore it and continue soldiering on. In reality, however, most people begin to allow their emotions to get the better of them. They begin to ‘feel’ the losses and become frustrated. This causes them to make mistakes, magnifying the problem of mistakes and causing even more emotional trading.

The curve of death is akin to the very peak of a rollercoaster. The climb is slow and steady, but the descent is oftentimes brutal and over very quickly. In a day you can lose weeks worth of success, perhaps even more.

It’s very frustrating but usually it isn’t noticed. People tend to blame the market or their trading plan. Perhaps the market was ‘acting up’ or the trading plan suddenly lost effectiveness. Most people don’t attribute the mistakes to themselves because they have no way of doing so. Sure, at the end of the plummet they will feel dreadful and annoyed with themselves, but then the search turns outward to what could have caused it.

A great way to combat the curve of death is to simply jot down the results of each trade. Mark down the profit or the loss on a sheet of paper. For the trades where you make mistakes, highlight them. At the end of the week or month, tally your totals. One total will be what you actually achieved in terms of profit or loss, and the next should be what you WOULD have made without the mistakes.

When you see how much you’re giving away each time you’ll definitely want to correct your behaviour.

If you want to learn how I trade the five minute timeframe profitably on Forex and Indices, jump over to - decisivetrading.usefedora.com

I hope you’ve had a great trading week!






2 comments:

  1. James, great article. I'm currently day trading equities, via CFD, but I'd like to move to trading FX and Indices. I've looked at your course content, gotta say I'm very tempted.

    ReplyDelete
    Replies
    1. Thank you, it's nice to get feedback. The course is currently 50% off until the middle of next month. It's exactly how I trade the 5 minute timeframe. Good luck with the trading

      Delete