Losses are inevitable in trading. It could be due to a technical glitch in your system, a sudden price reversal or maybe just a sustained bleed in your trading capital. Every successful trader has suffered losses at some point in their career.
Recovering from these losses takes time. In the aftermath of such events, we start to question our judgment of the market. Typical problems arise, where we either do not trade out of fear or get out of positions too quickly. But, things do get back on track. With discipline and focus, we can get back our lost confidence.
Stop Trading After a Loss
If you have suffered a huge loss, you need to stop trading temporarily. Continuing trading could increase the chances of incurring further losses since emotions will be stronger at this time. You mainly want to avoid a situation where you make the same mistakes, and your account gets completely wiped out.
When we have a losing streak, we often suffer from feelings of revenge, anger, self-loathing, frustration and fear. Such emotions do not have any place in the trading arena. They pave the way for foolish decisions that are regretted later on. So, stop and step back. It is ok to take a break for some time and come back with a fresh perspective.
Do Some Introspection
The next step is to accept responsibility for your failures. Sure, there are things in the market that could have been out of your control, but there is always something that you could have done differently. Try to figure that out.
What factors led to the loss? Was it your strategy? Or was it the trading terminal? Did you not follow the latest trends? You need to figure out what will prevent it from happening again. This is why traders should always maintain a journal, where they can record every move on a daily basis. Reviewing past trades, both successes, and failures is one of the best ways to learn.
Although you might have figured out the areas that need improvement, regaining confidence after a loss is another matter altogether. It is something that is built over time. Start by focusing on your trading plans and stick to them.
Experts suggest that it is always wise to start from scratch. ai A good way to restart is to practice on your demo accounts for some time. That way you can just focus on the strategies and not have to worry about your capital. After sufficient practice and a few wins, you will be at a better place mentally to start trading live again.
When you get back to live trading, start small. You can gradually increase your position sizes with time. Don’t rush back into trading. Trying to earn back the losses you suffered from earlier is the worst decision for a trader. While the idea might be tempting, it would mean that you are making trading decisions based on emotions.
Losses are sometimes good for traders. They drive you to review your strategies and make better ones for the long term. Losses help traders to learn and grow.