Why Your Trading Strategy Still Works After 10 Losses

Ever felt unbeatable after a series of wins, only to crash on the next trade? Or doubted your strategy after a few losses? This happens to many traders. Here's a breakdown of why these reactions are normal and how to manage them better.

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1. The Myth of the Hot Hand: In basketball, a player scoring several times in a row is said to be "on fire". This is known as the "Hot Hand Fallacy". In reality, these streaks are just part of normal statistics. Even the best players have losing streaks.

Lesson: Winning and losing streaks are normal in the long run. Don't hastily change your strategy after a few bad trades.

2. Humans and Probability: We're not great at understanding randomness. For instance, we worry less about car accidents than plane crashes, even though cars are riskier. This misjudgment extends to trading. We often overestimate our control over random events, leading to overconfidence in trading.

Lesson: Accept that trading outcomes are random and independent of previous trades. Avoid creating false rules for a sense of control.

3. Overconfidence Can Hurt: Success can make traders overconfident. They may take bigger risks, thinking they've got the 'magic touch'. But often, this leads to significant losses, wiping out previous gains.

Lesson: A winning streak doesn't make you a trading genius. Stick to your risk management principles regardless of recent outcomes.

4. Frequency of Losing Streaks: Doubting your strategy after a string of losses is common, but even good strategies face such periods.

Example: With a 60% Winrate system, losing streaks can occur as follows:
- 2 losses in a row: Once every 6 trades
- 6 losses in a row: Once every 245 trades

Lesson: Winning and losing streaks are part of trading. Don't abandon your strategy too soon.

5. Handling Streaks Wisely: During winning streaks, avoid increasing risks or overtrading. Stay disciplined. In losing streaks, resist the urge to recover losses quickly. Focus on executing your trades well, not just the outcomes.

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Tip: Review your last 10-20 trades before starting your day to avoid emotional mistakes. Stay mindful of your mental state.

This approach helps you understand the normalcy of trading streaks and the importance of sticking to your strategy through ups and downs.

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