Let’s face it—losing money in day trading can be emotionally and financially draining. If you’re here, you’re probably facing one of the toughest parts of trading: the dreaded drawdown. Losing money is frustrating, and sometimes it feels like no matter what you do, you just can’t get out of the red. But here’s the good news: with a clear game plan, you can turn things around. In this guide, I’ll walk you through a practical, step-by-step approach to stop the bleed, identify the root issues, and build a solid, profitable process.

Step 1: Understand the Five Core Pillars of Edge

Think of your trading edge like a five-legged stool. Each leg needs to be strong for the whole thing to work. These five “pillars” or “legs” are the foundations that support your trading process. Here’s a breakdown:

Bias: Your market direction compass. Are you going long or short? What’s signaling that direction? Typically this should be based on current market backdrop.
Location: Your entry “sweet spots.” Where exactly are you entering trades, and what makes these areas significant? Levels of interest are a key component to having an A+ trade setup.
Execution: Your trigger discipline. What’s your specific signal to pull the trigger? It could be bar closes, DOM patterns, or another systematic approach.
Risk Management: Your defense strategy. How much are you risking per trade, and what’s your position sizing approach?
Profit Management: Your exit strategy. When do you take profits? Do you scale out or exit all at once?

Each of these pillars should add to your edge. If any one of them is out of balance, it can erode your profitability. Understanding these will help you pinpoint where things might be going wrong.

Step 2: Diagnose Which Pillar Is Causing Your Losses

Now that you know the five pillars, it’s time to identify any weak spots. Pull up your trading journal and look at your trades from the last 30 to 60 days (you have a journal, right?). If you’re unfamiliar with the trade review or trade journaling process, read some of our other articles here. Don’t look too far back; markets evolve, and so do we as traders. Focus on recent trades to spot patterns.

Ask yourself:

Which trades felt solid?
Which ones went sideways?
What patterns do you see in your losses?

For example, if you’re consistently stopped out despite finding good entry points, you may have an execution timing issue. Or, if trades that worked at certain levels now consistently lose, your location strategy may need revisiting.

Step 3: Determine if It’s You or the Market That’s Changed

Here’s a heart-to-heart moment. When things go wrong, it’s tempting to blame the market. But in my experience (both in my own trading and in working with trading mentorship clients), about 90% of the time, the issue is staring back at us in the mirror.

It’s probably you if:

You’re breaking your own rules.
FOMO is driving your entries.
Your strategy exists more in theory than in practice.

It might be the market if:

Your profitable setups suddenly stop working.
Market volatility has changed dramatically.
Your timing remains consistent, but results aren’t.

Step 4: Use Data to Objectively Review Each Pillar

Let’s get scientific. To objectively review your trading, start tagging trades according to the five pillars. Use a spreadsheet (or prebuilt trade review template) to categorize each trade and look for trends across each pillar.

Example Insights:

Execution: If your “aggressive” entries brought profits in the past but now yield losses, a market shift may be impacting your strategy.
Location: If levels that worked well historically now fail, it could be time to adjust how you’re identifying those levels.

This data-driven approach will clarify whether the issue lies with the setup or in your application of it. Most traders are not getting this granular with their trade review, but it is bar-none one of the best ways to improve your game.

Step 5: Review Your “Trading Playbook” as a Visual Reference

Raw data doesn’t always tell the whole story. This is where a Trading Playbook becomes invaluable. This collection of chart screenshots, organized into three categories, gives you a visual reference:

Perfect Setups: The A+ trades that define your edge.
Maybe Trades: B-level setups that could go either way.
No-Go Zones: Trades to avoid because they don’t align with your strategy. I call these trades “donations.”

This Playbook keeps you honest, making it easy to see if your losing trades stray from your edge. If recent losses don’t resemble your textbook setups, that’s a clear sign something’s off.

Step 6: Get Specific on the Exact Problem in Your Pillar

Now that you know which pillar is causing issues, it’s time to drill down and identify exactly what’s wrong. This precise diagnosis allows you to create a targeted solution.

Examples:

Execution Issue: If you’re consistently entering too late, it could be due to overly strict criteria. Consider using a single signal instead of waiting for multiple confirmations.
Location Issue: If key levels are failing, you may need to refine how you’re identifying those areas.

Step 7: Test Solutions and Adapt as Needed

When you create a new rule or solution, monitor its effect. Adjusting one pillar can impact others, so don’t hesitate to make tweaks. For instance:

If loosening your entry criteria increases trade frequency but leads to more stop-outs, you may need to refine your location or risk management strategies.

Trial and error is part of this process. Balance is key, so make sure all five pillars support each other and don’t clash.

Step 8: Embrace Responsibility and Take Ownership

This might be the hardest step of all. Accepting that your losses are usually your own doing is tough, but it’s essential. Blaming the market or external factors only holds you back. Every loss has a lesson, and every drawdown is an opportunity to improve. Too many traders are unwilling to look at those losses and extract the lesson. If you can do this simple task, you will make it as a trader.

Step 9: Continuously Adjust and Maintain Balance Across Pillars

All five pillars are interdependent, so adjustments in one area can impact others. For example, if you add more levels to your chart, your execution criteria might need tightening to avoid overtrading. Regularly review each pillar to ensure they work in harmony.

The Path Forward

Trading is a journey of continuous improvement. The key to stopping losses isn’t finding a magical strategy; it’s about:

Being honest about where you’re falling short.
Making specific, measured adjustments.
Staying consistent with your improvements.

Taking Action

Ready to put this into practice? Here’s your homework:

Review your last 20 trades.
Tag them according to the five pillars.
Identify your weakest pillar.
Create one specific adjustment to test.

Recovery isn’t about getting it perfect—it’s about getting a little better each day.

Get Extra Support in the Community

If you want more hands-on guidance, consider joining our community of traders who support each other through the ups and downs. Sign up for our free trial to the Trader’s Thinktank to gain access to live calls, daily trade plans, and support from a network of traders on the same journey.

This guide is your blueprint for tackling drawdowns and building the skills needed to become a consistently profitable trader. Keep refining, stay disciplined, and remember—progress is a marathon, not a sprint.