How Losing Trades Can Affect Your Next Trade

I’m sat here reading a post by a ‘trading coach’ and I’m a little bit troubled by what I see. It’s not that what’s been written doesn’t make sense – I understand what’s being said – but it’s written in a manner that I believe is likely to be quite misleading for many traders. On top of this, there’s no real suggestion as to what a trader might do in order to tackle the issue at hand.

I’m not trying to be critical of the wisdom on offer, just how it’s presented.

So let’s delve into the subject matter right now and see if something useful can come out of it. The subject is “how losing trades can affect your next trade”.

How losing trades can affect your next trade

The simple fact is that individual traders are not robots. They can and frequently do change their trading decisions based on particular circumstances and conditions in the build up to an opportunity occurring. The piece I’ve just read focuses on how traders sometimes reduce their trade size during a session when they take a few losing trades in a row, so this is something i want to discuss.

The reasons why someone might do this can either be unhelpful or helpful.

For example, if a trader has a strategy that only requires them to identify and take every trade setup and is agnostic of market conditions, then taking the next trade on half size has the potential to sabotage any expectations drawn from the testing phase. You don’t know what the distribution or winners and losers is likely to look like and in any case, you may well not have accounted for it. When a trader acts this way, its often an emotional response to losing trades and it’s not helpful in the long run.

However, there are other ways in which reduction in trade size can be useful. For example, if you use market conditions and context in order to recognize when and where your strategy is likely to be performing optimally, it makes a great amount of sense that if the market hands you more losing trades than you would reasonably expect, then it could be that conditions are starting to change. In order to find out but still remain in the flow, reducing your trade size may well make sense.

Then there’s another factor to consider – traders are people and by nature, they have emotions. Although you dont know where the next winner is going to appear, the chances are that if you’re being driven by negative emotions created by a string of losers, when those winners do appear you’ll not execute them as you should. If you recognize this, trading with smaller size until your head clears, can be very useful. Of course, this is only going to be helpful if the strategy that you trade provides you with a sufficient number of opportunities each session.

Performance restricting

Let’s concentrate on the unhelpful reasons why a trader reduces their size. What was being pointed out in the piece I mentioned earlier was that when you allow emotions and thoughts to clear, it’s easier to think in a sensible way. And this is true. However, the problem traders have is this very disparity and how to regain control.

The chances that your thinking is just going to clear because you know that it’s helpful for making trading decisions, are not great. However, using preparatory techniques such as scenario-based visualization and practising mindfulness can help to disrupt recurring patterns. By rehearsing theses scenarios and honing your in-the-momentum awareness, you can spot the problems as they occur and stand a much greater chance of dealing with them appropriately.

Incorrect mentality

Expectations about the markets are often incubated for two reasons. Firstly, the trader starts to believe in a trade often because of emotional attachment and aversion to loss. Secondly, they are focused more on what has happened and forget about the traders sitting in wait. All that the unfolding market information gives us is the potential to identify situations where the probability of one thing happening over another is higher.

This is where thinking in terms of performance over sets of trades and not individual trades comes in. Recognizing that some trades will be losers no matter how good they seem at the time and that in fact, this really doesnt matter anyway, can really help traders accept losses.


Lastly, I’d like to mention under-capitalization. Fear of losing is dramatically intensified, when a trader doesn’t have sufficient capital in their account to trade the product and strategy they have chosen and sustain a extended losing streak or period of low win rate. In this situation, one that’s extremely common, every trade takes on greater significance.

For me, the difference between reducing trading size after a run of losers because of fear or tactical planning is an important point to make. But if you are suffering from the former, understanding what the root causes might be and that there are techniques you can employ in order to reduce the chances of it happening can help to put you on a better path fot the future.

Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at