Let us face it, drawdown (a decline from a historical peak in trading) is the hardest thing to battle mentally in trading forex. When we are in a drawdown we analyze numerous things - was my entry incorrect? Am I over-leveraged? Maybe I am just on a losing streak? Is my strategy not good enough?
These things in mind may lead a trader to over analyzation and sooner or later if the drawdown gets even worse it may lead to revenge trading (your broker's best friend)
TOP 5 TIPS TO HANDLE DRAWDOWN MENTALLY
1. Stop trading - A successful trader once said in an interview, "If I lose 5 trades in a day, I'm done for the day"
2. Top up your trading account - Let us compare forex trading in the war as an example - When the soldiers in the war are losing and gets depleted, the war morale of the soldiers go down as well. But notice that as soon as the reinforcements come to the rescue, suddenly there is a feeling of hope, confidence, and reassurance. When you see your capital back to its "normal balance" or equity, it will help you mentally on a drawdown.
3. Create a new trading account - It is also nice to start fresh and new.
Bonus Tip: Remove the P and L (Profit and Loss) on your screen and only look at it once or twice a week. In this way, you can stay focused on your strategy and continue to trade correctly regardless of the result. - If you stare at your P and L all the time, P and L (Profit and Loss) will mean "Pain and Loss"
Drawdown is a mental battle that we can overcome. Just remember that even the elite traders and the cream of the crop fund managers have drawdowns from time to time. Drawdowns are bound to happen as long as we are trading, what's important is how to react and take action in the drawdown season.