How to endure losses painlessly

It's a marathon, not a sprint

consistency in trading

The duration of your drawdown is “how long” it takes you to get back to the previous high. It’s one thing to be down 10%, but how long will it take you to recover?

If your losses are “in model” there’s no reason to panic. You can get this information from backtesting your rules in a simulator. If you are trying to read charts, you’re out of luck because your activity is based upon guesswork. And worse, you’re looking at headlines for trade ideas which might lead to “acts of desperation” because your self esteem has taken a hit.

[In the course I teach, I show you actual trades and account statements where I’m in a 40% drawdown, stick to my systematic trading rules, and recover to the point where the account is up almost 300% over the next 9 months. The point is, I’ve been there, felt the feelings, and had to stay committed to my purpose.]

While you’re enduring a drawdown, your instincts might lead you to begin trading more frequently. 

Greater frequency of trades doest not equal greater opportunity. Most trades are suboptimal so I think you’ll do better in any case by trading less frequently.

Your instincts might also lead you to “investigate” a new trading methodology to “overlay” on your existing rules, such as option selling because it brings in “revenue.” You can lose your a** selling options. 

Behave consistently as you would when you’re up 20%. All you do is follow your rules. Take it one day at a time. All you can do is control your behavior. You’re powerless over what the markets do.

Two, if you’re down 20% and focusing your intention on getting 25% to get back to breakeven, you’re being myopic. Focus on getting the next 50% upside run. Intention equals results. Focus on new equity curve highs, not breakevens.

Meditate on how you feel when you have to be patient. You might feel anxious, depressed, angry, and frustrated to name a few. I don’t believe your can overtrade your way out of a drawdown. 

You may also consider trading a larger position on something that you are “sure of” because “…if it only goes up 10%, I’ll be back to even.” 

“To every thing there is a season, and a time to every purpose under the heaven” – Ecclesiastes 3:1, King James Bible

Your trading rules might be “out of season” with the market. If you’re a commodity trader, you know those markets are cyclical – so no surprise there. If you’re an equity trader, sectors rotate so your winners will ebb and flow in secular markets. 

You will go much further as a trader if you understand that losing money and drawdowns are not a reflection of your ability to create alpha as a trader. But how you handle losses and drawdowns emotionally and behaviorally will provide you and others insight on your managing larger sums of money. Investors and allocators need to know you can be trusted.  


Avoid adopting new systems, trading larger position sizes to “get back to even,” and increasing your trading frequency when in a drawdown. Your sense of persistence and determination will have a big impact on your equity curve and taking it to new highs. Consistency in your behavior reveals a lot about your character. Breaking the above rules suggests that you either lack confidence in what you’re doing or are much further from going pro than you think you are.

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