As part of my business, I trade a live account and report results to clients via a blog. The second half of May has seen the first sustained run of losses since this blog account started trading several months ago. In a little over two weeks the account had 7 losses with only 2 very small wins. This resulted in a significant loss for the month.

When I began the blog, I warned that losing runs were inevitable, and I was surprised at how long it went without a significant losing spell. All systematic methods have losing periods – they are an inescapable part of the trading process.

The fundamental requirement is to manage your trading so that winning trades tend to be bigger (or more numerous) than losing trades, and winning streaks yield more profit than losing spells. That is where proper money management and discipline come in.

Of course, it is great when you are winning, and it is not pleasant to take losses. However, as years pass you get more relaxed about it because you know that all good runs, and losing streaks, come to an end. As long as you stick to your plan and resist over-trading, or dipping into the market in an unplanned way, you should be fine.

It is during losing periods that traders learn most about themselves. Over the years I have worked with many aspiring traders, and some of them found themselves quite unable to handle the volatility. It is one thing to look back over a trading record and appreciate intellectually that there are drawdowns, but it is quite another thing to live through them with your own money on the line.

One of the most common reactions is to lose faith in what they are doing. “It worked before, but now I think the market has changed…” The trader worries that something fundamental has happened and he or she needs to start doing something different. Tweak their system, try another method altogether, spend countless hours back-testing various variations and brainstorming new methods.

Some traders constantly alter their systems, chasing things that would have worked in recent market conditions. Of course, as often as not they move away from their previous method just as it starts working again, and into a new method just as it goes off the boil. In my experience, there is no way of predicting when markets will move in and out of sync with your trading system, so you just have to be consistent and persistent.

When I taught my elder son to trade, I emphasized the importance of sticking to his plan through good times and bad. I preached it passionately, even though I did not always practice what I preached! Nowadays, he uses our automatic software with his favourite settings, and hardly ever makes a change. His tenacity amazes me, and he consistently makes good annual profits. On one occasion he persisted through a string of 13 successive losing trades, before entering one of the most profitable periods of his trading career.

On the blog trading account, I need to change strategies regularly to let clients see how various options work out in practice. To avoid any temptation to chase market variations, I do this to a strict schedule. So I know that at the end of the month, I will be pursuing a particular strategy variation, no matter what the markets do until then.

If anybody contacts me asking what I think about a particular strategy change, I strongly advise them to set a date a couple of weeks away to make the change. If it still seems like a good idea then, by all means go ahead. At least the change will not have been made impulsively. I firmly believe that the best traders have one trait in common; they know how to deal with losing spells without losing the plot!

David Bennett trades US commodity futures from his home on the Gold Coast in Australia. He provides coaching and mentoring services for people wanting to start trading for themselves. David is the author of the popular trading book “Day Trading Grain Futures” and recently developed the TradeOnAuto software package. Visit http://www.12oclocktrades.com to read more futures trading articles, or follow his daily trades at http://www.tradeonauto.com/blog.

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