One of the great certainties of the stock market is that it is cyclical. It goes through a variety of ups and downs that manifest themselves in various ways. However, it is not just the market that is cyclical. Traders are also cyclical. All traders go through booms and busts to a varying degree, and those ups and downs don't necessarily correlate to market action, but often do.
As hard as they try, traders will never eliminate those periods when nothing seems to go right. What has been working, stops working, and it is nearly impossible to adjust your approach without being out of synch for a while. Traders almost always hit a point where they end up giving back far more profits than they thought they would.
Typically, trading losses will occur very suddenly and will pile up far faster than the gains did. A chart of a typical trader's profit and losses will look like a steady escalator going up and then suddenly elevator drop lower. Few things are more frustrating in trading than seeing weeks and months of profits disappear in the matter of a few days.
I've written often about how the key to long-term success and compounding your account is keeping it as near to highs as possible. Making up losses and getting back to prior high levels is extremely unproductive. However, no matter how hard we try to avoid it, every trader has to deal with these sharp pullbacks at times.
In retrospect, it is always easy to see the mistakes that we have made. We should have sold this or not bought that, but typically a trader suffers because they have let their discipline slip. There is a tendency to repeat the mistakes of the past even when we are very aware of them. Most traders have to relearn the lessons they have learned in the past many times. It isn't a lack of knowledge that trips us up. It is a lack of applying what we know that causes us pain.
How do you recover from one of these poor periods and get back on track?
The first thing to do is to remind yourself that as long as you have capital, the market will provide an endless stream of opportunities. If you miss a good trade today, you will still have the chance at a good one tomorrow and the next day, and the next day. It may feel like you have lost your mojo at times and will never find a good trade again, but if you keep plugging away, you will.
I often find that it is a good idea to 'clear the deck' at times. Sell everything and start fresh. You can rebuy your favorites if you like but setting them aside temporarily will shift your thoughts and feelings about some stocks you have been holding.
An alternative to clearing the deck is to 'mark-to-market.' Look at each stock you own as if you bought it today. Do you still want to own it? Where would you set a stop level if you just bought it? At what point would you reduce the position? Treat it like a brand new trade and let go of all the baggage that you've attached to it.
What is particularly important when trying to make a shift in your trading is that you shake off inertia. Almost always, the significant losses are caused by feeling frozen and unable to act. It is easy just to sit and watch a favored stock sink lower and lower and tell yourself it is sure to come back eventually. It is the path of least resistance to find justifications for doing nothing. The best course of action is to do something. It doesn't have to be some grand strategy, but you will find it easier to make further moves once you make a move.
Keep in mind that the cycles of ups and downs in trading are inevitable. You will never be perfect, and you will never be able to keep accounts at their exact highs for prolonged periods. The key is to stay self-aware and quick to admit when you are struggling and need to reset.
If you are struggling, you can have a fresh start any time you like. Trading is one of the hardest things you will ever do, but that is why it has the potential to reward you so greatly.