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Smart Ways to Deal with Big Trading Losses

Posted on Tuesday, November 12th, 2019 by Sean Sechler

Big losses in trading can be demoralizing and make lasting impacts on your investing decisions. It’s how you bounce back that determines your success in the markets.

Even the best traders in the world make mistakes. One of the most important qualities that is the difference between failing as a trader and becoming successful is the ability to shake off big losses. It’s important for us as traders to accept the fact that losses are an inevitability if we plan to make money in the markets. No one can be perfect with every one of their decisions, which is why having a proper risk management strategy is so important. This is especially true for day and swing traders that make transactions with higher frequency.

It doesn’t matter if you are a long-term investor or a professional day trader, learning how to bounce back from big losses is essential to your overall success in the market. You have to avoid letting your emotions control you after a big loss. Try to focus on what happened in the trade and why it went against you. A bad trade is a great learning opportunity. Keep reading on below to learn some of the smartest ways to deal with big trading losses.

Step Away from the Market

One of the biggest mistakes that traders make when dealing with big losses is continuing to trade. Keep in mind that after a big loss, your emotions are not in check. You are much more susceptible to enter into a bad trade or poor trade setup after a big loss. Trying to make up for your big loss by more trading is a recipe for disaster. You will probably be even more hungry for profits after a trade goes against you. That’s why it’s best to step away from the markets after a big trading loss. Try to avoid trading after a big loss for at least a day or two, until you have had time to reflect on the loss and understand what went wrong. Think through your approach to risk management, your trading plan, and any other external factors that might have impacted your trade before opening another position.

Accept the Loss

One of the smartest things you can do after a big trading loss is to simply take a step back and accept the loss. By taking ownership of the loss, you can begin the process of learning from your mistakes and reflecting on what went wrong. A lot of traders get into trouble when they hide from the loss or try to find reasons to avoid taking the blame. Accept the loss and understand that you made the educated decision to take on the risk of the trade.

Analyze Your Trading Plan

Another smart way to rebound after a big trading loss is to spend some time analyzing your trading plan. What was your trading plan? What was your stop loss set at? Why did you decide to enter the trade? What was your risk-reward ratio for the trade? If you don’t have answers to all of these questions, make sure you do before stepping into your next trade.

Stay Positive

Taking a big trading loss can be extremely difficult to deal with emotionally. It usually feels like the loss was all your fault. It’s important to stay positive after a big trading loss so that you are able to bounce back. That means looking at the loss as an opportunity to learn something. Remember that one loss doesn’t define you as a trader. Never forget that trading losses are simply part of the game and that every successful trader takes losses. One of the most important things to keep in mind when you are dealing with a big trading loss is that your mindset is everything. Staying positive will allow you to move on after a big loss instead of dwelling on it and letting it prevent you from trading success.

Don’t Give Up

Losing big on a trade can be extremely difficult to deal with, particularly if you took a major financial hit. Feelings like resentment, guilt, and anger are all common after a huge loss. You might be tempted to walk away from trading altogether after losing big on a trade, but remember that persevering can lead to huge financial rewards later on down the road. Every trader has to deal with losses at some point. The sooner you can accept this, the closer you will be to profitable trading.




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