Most people think that successful investing or trading days are always followed by more successes.
The idea is that once you’ve found a system or strategy that works, you just keep doing it and the money keeps rolling in.
However, this isn’t always the case. Successful days are often followed by plateaus and losing streaks – and it’s a well-documented phenomenon:
- Dr. Ari Kiev, author of “Trading to Win”, says that “winning days are often followed by plateaus and losing streaks.”
- Dr. Terrance Odean, a behavioural economist, has pointed out that beginner online investors who have multiple successful trades often wind up over-trading.
In this article, we will explore why this happens and how you can still be successful in spite of it.
Why Successful Investing/Trading Days Often Lead to Plateaus and Losing Streaks
So, why do we often see successful days lead to plateaus and losing streaks? There are X overarching reasons why:
We Become Overconfident and Reckless
The first reason is that we become overconfident. When we have a few successful trades in a row, we start to think that we’re invincible. We become convinced that we can’t lose. So we start taking more and more risks.
We don’t want to cash out and take our profits because we’re convinced that the good times will keep rolling (a psychological trap commonly referred to as the gambler’s fallacy). Unfortunately, this often leads to us losing everything we’ve made – and then some.
To avoid this, it’s important to stay humble and remember that the markets can always turn against you. Just because you’ve had a few successes doesn’t mean that you’re immune to losses. Have a plan, stick to it, and don’t let your emotions take over and convince you to take unnecessary risks.
We Get Greedy
The second reason why successful days often lead to plateaus and losing streaks is greed. Once we start making money, it’s only natural to want to make more and more.
We see the potential for big profits and we start taking bigger and bigger risks to get there. Unfortunately, this often leads to us losing money instead of making it.
To avoid getting greedy, it’s important to have a plan and stick to it. Don’t let your emotions take over and convince you to take unnecessary risks.
We Start Overcomplicating Things
The third reason is that we start over-complicating things. When we have a few successful trades, we often think that we’ve found the Holy Grail of trading.
We start adding more and more indicators and rules to our system, until it becomes so complicated that it doesn’t work anymore.
To avoid overcomplicating things, it’s important to keep your system as simple as possible. The best trading systems are usually the simplest ones.
We Become Exhausted from Adrenalin
The final reason is that we become exhausted from all the adrenalin. When we’re on a winning streak, our adrenalin levels are through the roof.
We’re constantly on the edge of our seats, watching the markets and waiting for our next trade. This can be exciting at first, but it quickly becomes exhausting.
The Bottom Line
Successful days are often followed by plateaus and losing streaks. This happens because we become overconfident, greedy, and reckless.
To avoid this, it’s important to stay humble, have a plan, and keep your system as simple as possible.
Terry
P.S. If you’d like to get started with your stock investing/trading journey while minimising your mistakes, here are 3 resources you might useful.
- The first is my comprehensive blog post: Going From Absolute Novice To Confident Investor (The Complete Stock Investing Guide). It goes through all the steps you need to take in order to become a confident investor and reach your financial goals.
- The second is our FREE 10 Stock Criteria Checklist, which helps you identify what I consider to be the financially strongest 1% of stocks in the market at any time in less than 5 minutes. Click here to learn more.
- The third is our FREE 90-Minute Online Masterclass, where I’ll show you how I personally anticipate market crashes in advance and prepare for them. Click here to learn more if you’re interested.
