Trading a loss can be devastating on the financial as well as emotional level.
As victorious as loss feels, your reaction to loss will be far more important than the loss itself.
Inexperienced traders can let their emotions run wild and take away their trading strategies.
Some may try to trade through the pain, while others will completely withdraw from trading.
Others may even try to trade in revenge to try to make up for their losses.
None of these reactions can be constructive on any level.
In fact, they will most likely go in the opposite direction and actually become destructive because you are not learning how to deal with losing trades.
Whether you took a loss because of a mistake in your strategy or a lack of discipline in trading, be sure: whether they are big or small, in succession or spread over time, every trader will suffer losses.
As this happens, new marketers will often start questioning themselves.
As a direct consequence of this, mistakes will inevitably occur. The most common mistakes are:
- Get out of business too fast
- Holding positions for too long
- Avoiding trades out of fear
- Entering far more businesses than they should
Part of what really sets a good trader apart from a great trader is how they take those losses.
Large retailers will see them as learning opportunities and will use them as a fuel to improve their skills and improve on what they do.
Based on these insights, here are some basic rules to help you avoid a big loss in the near future:
1. Stop losing big. Check your losses.
“You can’t win unless you learn how to lose.” – Kareen Abdul-Jabbar
You’re probably thinking something along the lines of: “Well thank you “, but listen to us about this one.
If you are averaging a certain amount or percentage on a winning day, you can try to control the downside if you are forced to go out when you hit a loss of that same amount on any given day. By doing this, you will minimize risk because “crushing losses” will never happen because you will not be able to lose more than your daily average gains.
2. Stop losses are your friends
“The greatest test of courage on earth is to endure defeat without losing heart.” – Robert Green Ingersoll
Stop losses are for a trader, which is safe for everyone: it’s nice to have protection of your assets, but you certainly hope you never have to use it.
Having a successful career as a trader does not simply correlate with accumulating many wins, rather it is the accumulation of many successfully managed wins and losses.
3. Never engage in revenge
“Success is a bad teacher. It attracts smart people to think they can’t lose. “- Bill Gates
Revenge, fear, anger, frustration, hatred of the market, hatred of oneself …
The list of emotions could go on almost indefinitely because it is almost impossible to trade with a clear head after a loss, especially when it is massive.
As such, check your impulses because there is no urgency to get back there.
Moreover, there is an inherent danger that comes with revenge trading: if you actually win, you will condition yourself to believe that you have courage and that trading that is fueled by emotion may be a winning strategy. As such, you’ll consider doing it again only to find that the dark side of revenge trading is digging a much deeper hole in your account.
4. Stop trading for a while
“Never rush; do everything calmly and in a calm spirit. Don’t lose your inner peace for anything, even if your whole world seems upset. ” – St. Francis de Sales
A break from trading is often one of the most difficult things a trader has to do.
Leaving the game is difficult, even if it’s only for a while, but clearing your head and waiting for the conditions to improve is helpful because as those conditions improve, so do your results.
So, learn to keep your cash, but more importantly, learn to keep your sanity.
5. Trade lower positions
“Man cannot discover new oceans unless he has the courage to lose sight of the coast.” – André Gide
As an opponent to the last point, if you are not able to stop completely, try to take a step back and lower your position sizes to decrease the pressure. You can even try a demo account for a while.
Winning with a smaller position will help you regain your confidence
By accepting responsibility, accept the process and forget about the outcome.
Continue to educate yourself and develop flawless execution.
Like Lyndon B. Johnson, the 36thth The President of the United States once said, “Yesterday is not ours to heal, but tomorrow is ours to win or lose.”
So if you’ve just taken L, that’s better tomorrow!