A significant trading loss may be emotionally as well as financially devastating.
Inexperienced traders who have suffered a consequential loss may be hijacked by their feelings. Some people might attempt to trade through their suffering—denying it—making things worse for them. Some people may withdraw to sweep the damage under the rug; this avoids thinking about the loss. Other individuals will often soldier through and attempt to do better; they are determined to make up for their losses.
None of these responses are helpful. They may even be harmful if you don’t learn how to deal with losing trades. Trading decisions are clouded by emotions that can cause erratic behaviour. Traders may cut winning bets prematurely, overtrade or overstay unprofitable positions.
Successful traders see losses as a chance to learn and expand their skills.
Returning from a significant loss may be difficult, but you won’t succeed by ignoring or denying trading losses. Even the most devastating losses can serve as stepping-stones to greater competence.
Here are seven stages that successful traders go through to become emotionally stronger and more disciplined after a loss.
Accept that you were responsible
You are responsible for the loss; don’t try to shift the blame. Don’t sweep it under the rug, hide from it, or pass the buck. You have control over your trading when you accept responsibility for it.
It doesn’t mean you need to punish yourself for making a mistake, but you need to accept that you are to blame and move on from there.
Put your trading on hold for a bit
Take a step back to figure out what went wrong. Scrutinize the situation after looking at what occurred. Consider where you may have fallen short. Was it your fault that you took too much risk? Were the trades well thought out? Were you mentally sharp, or did you try to avoid a loss by holding a losing trade?
Draw up a plan
Make a thorough action plan for future transactions. The components of your strategy should contain changes you will make (such as establishing and respecting a stop) and things you will avoid doing (such as holding a loser hoping it would return to break-even).
Construct an even better plan
Is there anything from this trade that you can apply to turn things around? Good traders will accept a loss as a stop-loss and wait for the next chance. Better traders will reverse their position if market conditions permit, not only making up for the initial loss but also adding to their bottom line.
We may avoid many losses by detecting underlying causes for nearly all unfavourable trades. Can you discover important market events (e.g., momentum changes, volume levels, price activity) that you can identify and capitalize on it? These events will provide you with clear criteria for a trade that isn’t working and a new, innovative edge. You’ll be less prone to lose in the future.
Put things into perspective
You are more than your trades. You have responsibilities outside of trading that are essential to you and others. Even a major trading loss does not define your value. When the chips are down, getting perspective on your life helps you regain balance so you can take action to turn things around.
Use this loss as motivation to learn and improve your trading abilities. When world-class athletes realize they have a weakness in their game, they get motivated. They use the shortcoming as a stimulant to enhance their performance.
Come back strong into the trading world
After you’ve completed the recovery process, then it’s time to take off your cast and get back into the trade game. You’re mentally stronger and better equipped than you were before. Allow the loss to be something of the past and put your positive intentions into action. If you want to learn more and get better at the game, then browse this site.