Anyone who is day trading, or just trading for long enough will eventually hit a slump. What is a slump? Well, its when whatever you are doing is consistently not working for long enough to affect you mentally. Sometimes this can be due to bad habits being picked up, but often times a slump is simply a result of a shift in market dynamics in such a way that your style of trading just is not gonna work. Most traders will pick a style they are comfortable with after a period of time – meaning they like breakouts/breakdowns, like to play retraces in a trend, like to pick reversals, play momentum etc. There are lots of styles. Unfortunately, the market will not always stay in phase with all these at the same time. It is up to the trader to determine when this “shift” occurs – usually this is through losing money.
Once you realize a shift might have happened, you should at the very least cut back your trading size on whatever style you are using that is having trouble. I usually cut it back to 1/2 to 1/3 of what I was doing before. Then you need to really look at what you have been doing and analyze if there is any modification that would make it work better. This is assuming your style is based upon well researched rules and trade setups that have worked very well in the past going back at least 6 months.
If after looking where you are entering and exiting, looking at the setup, looking at the stop and you determine there really is no way to predict a better entry (or other stuff) ahead of time, then you need to figure out another method that is working and try to concentrate on that. Usually if breakouts are not working, that means reversals are (guessing the turning point of a trend etc). If retraces are not working, then pattern failure trades are working and so on. The hard part here – will this type of market last long enough that if you switch to mainly day trading a different setup than you would normally do, that the market does not flip back and you get burned yet again as you are too late to the game. This has happened to me many times before, as I am sure it has happened to others. The same happens when swing trading as well.
In addition, sometimes the market will make short term chaos type trading work, which makes most other stuff not work. By chaos I mean whatever normally happens when the stock does x (x can be any type of setup), the opposite happens in a bigger way than if x worked in the first place. If you can identify this you can just do the opposite (going short instead of long when setup y happens …) IF you are really disciplined. This really can lead to bad habits happening, and you cannot be sure when the market will stop this type of behavior. Usually rather than do the opposite of how I have always traded, I simply sit on the sidelines and wait until I see conditions improve. A good way to get by this is to trade a simulated account rather than a real one, when you start to be consistently winning again, its time to go back to real money.
You also have to worry about your mental state when a slump is happening. It makes you second guess everything (and rightly so if you think about it, your trading has gone from consistent to inconsistent) – but what gets frustrating is you second guess entries that actually work and you are not in them, then might actually enter one that does not work. All you can do here is to stop trading OR just trade a simulated account for a bit until some time passes. Usually a week or so of not really trading will clear out negative thoughts and you can get back to concentrating on how to get out of the slump and get back to winning.
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