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Ouch! That really hurts... Have you checked your keyword's rankings? They might be falling in SEs that's why you're drastically loosing traffic. Have you stopped link building? How about your new posts, are they related to your blog and has keywords on them? I suggest bookmaking your new posts to digg and stumble upon. And check your targeted keywords, they may have high search volumes when you first researched for them and possibly has low search volume now.
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