If you trade cryptocurrency , you will experience a losing streak at a certain point in your trading journey. How you cope with it will determine whether or not you have what it takes to become consistently profitable. Here is a detailed process on how you can control your drawdowns:
1- Keep your risk as low as possible
What would happen if you lost 20 trades in a row? Think about that for a moment. Take the percentage you have been risking per trade and multiply it by 20 and see what you get. If it’s above 100, you have a serious problem. There’s no universal answer here. It comes down to your tolerance for risk, which only you can determine but usually 1% is a good benchmark if you want to stay long in the game.
2- Reduce risk if losses continue
The second step in this process is to lower your risk per trade if losses continue. This guarantees you a soft landing during a drawdown period, rather than a crash and burn experience. Once you regain your confidence, you can start increasing the risk per trade back to its original level.
3- Drawdown cap
Aside from walking away, which we’ll cover next, this is arguably the most difficult step to follow. Some months it will feel like the entire market is against you. If you haven’t experienced this already, you should be ready for it. One way to prevent losses from piling up when you’re off your game is to set a weekly or monthly cap. Just like you set your risk per trade, you can establish a drawdown cap.
4- If all else fails, walk away
If things aren’t going your way, you can simply take a break from trading. That’s an incredibly powerful position to be in, yet so few traders take advantage of it. When faced with a drawdown situation, most traders feel the need to try harder. They want to make back what they just lost as fast as possible. If losses continue to mount even after reducing your risk and perhaps even your trading frequency, just walk away. Spend time with your family or play your favourite sport. Whatever you choose, just make sure to stay away from your charts.