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How to Break a Trading Slump


Here's why you shouldn't completely remove yourself from the markets after an extended period of poor performance.

Whether I was in a slump or feeling badly or having trouble off the field, the only thing to do was keep swinging.
Henry Aaron

Ever been in a slump? A bad one – a really bad one? If you have invested in the markets for an extended period of time, you likely have had a trading slump or two. There's no way around it, and despite its discomfort, trading slumps are an inevitable component of investing. Eventually everybody gets stung, and regardless of the systems, processes, and disciplines that traders (or investors) follow, strategies are not infallible. Stretches will invariably pop up out of nowhere in which you can't seem to buy a hit: the dreaded trading slump.

If you've found yourself in this situation, the first thing you need to do is acknowledge the trading slump and tell yourself the overriding goal is to simply get through it as unscathed as possible.

Second, try to define the nature of the slump you're currently in. Are you missing opportunities? Are current positions not working and giving you fits? Do you find yourself missing major moves? Are you deviating from your normal processes? Or are you the proverbial deer in the headlights and too frozen to act?

Every situation (and person) is different, but once you've acknowledged the trading slump and defined its nature, I would suggest not disengaging from the markets. As tough as this may be, try to keep yourself involved, but definitely try not to press. Side note: I would overwhelmingly encourage you to disengage from individuals and commentary that appear to be endlessly right about everything. These people add nothing more than frustration, and frankly, they may likely struggle the most when tides turn.

Staying involved and abreast of the markets, however, does not mean taking a couple of extra hours of batting practice in the cage. Trading slumps are mental, so try to increase breaks, walks, naps, exercise, and other stress reducing activity in an effort to allow your inner pressures to subside and your subconscious mind to strengthen. Re-developing the confidence and level-headedness needed to deal with volatile markets on a day-in-day-out basis will likely take some time. Remember that patience is your friend.

Start to go back and examine stretches in a trading journal when you ripped the cover off the ball, and try to recapture your state of mind. Re-read classic investing books and understand how and why Hall-of-Fame investors have gotten to where they are. An overriding and underlying message that you'll likely reacquaint yourself with is that, frankly, there are no easy answers.

Hank Aaron's quote may not translate perfectly to investing – you don't receive an unlimited number of at bats but you can wait much, much longer for the really fat pitch. The important message, though, is that slumps are merely a natural part of the game. Ironman Cal Ripken Jr. once played on a team that started a season 0-21 and also endured a painful 1992 season, in which he batted .190 over a 73-game homer-less streak. I'm guessing the key for Ripken was similar to a slumping investor – show up every day and grind it out with that underlining goal of merely getting through.

This article by Ross Heart was originally published on See It Market.
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