Trading is never a smooth sail. There are moments when you’ll celebrate the profits made and also moments when you may feel heartbroken from losses. It’s easy to see your mentors making so much profits trading on their Mac, Windows, and big screens and recording losses, yet they can recover the losses they recorded faster.
You don’t understand the underlying story or activities they embark upon to recover from losses. In the guide, we will share five (5) tips to follow to recover from a significant trading loss.
How to Bounce Back From Recording a Huge Loss in Trading
A trader’s journey is about stages, and losses are the path to the thread to unlock some stages. You unlock a stage when you lose money and another when you lose a bigger amount. There are moments when you lose $100, and as you proceed, you may lose $500 or more.
This indicates that you have scaled through different stages of psychology, expertise, experience, and emotions. As a trader, it’s important to be prepared for losses. While it is impossible to eliminate the risk of losing money, there are several strategies you can employ to minimize the impact of losses and bounce back pretty fast.
Below are the proven strategies you can employ:
1. Establish a Risk Management Plan
Before you begin trading, you must establish solid rules to guide your daily trading activities. These rules should specify how much you intend to risk or lose at a particular time by ensuring you implement the proper lot size, setting your stop loss, and other risk management strategies.
Establishing a risk management plan is important to help you stay disciplined and cut your losses. With risk management, you eliminate the greed of overtrading and understand when to enter and leave a market.
2. Keep Emotions in Check
Understanding your emotions and having dominant control over them is super important. It isn’t to keep your emotions in check, especially when you have half of your trading equity in the negative. However, you need to master how to control your emotions, even though learning may take time.
Try hard to prevent your emotions from clouding your judgement. Instead, use logic. Remember that it’s a bad trading habit to think while in a trade; instead, you should think before getting into a trade. Thinking while in a trade makes you take action from your emotions. However, when you think before taking a trade, your actions will be based on your technical analysis mastery.
3. Learn From Your Losses
Whenever you encounter losses during a trade, it’s paramount that you take a sit and learn from the mistakes you made. It’s often said that one needs to be a student of failure before becoming a master of success.
You should take responsibility for the loss and question yourself about what you did wrong and what you could have done better rather than passing the blame on to the broker, your mentor, or the signal you received.
Learning from your losses makes you a better trader. You’ll be more informed and equipped with the knowledge to prevent such occurrence from repeating itself.
4. Maintain a trading Journal
The importance of keeping a trading journal cannot be overemphasized. Every trader who wants to master trading must maintain a trading journal. A trading journal helps you to keep track of your trades. It serves as a reverence to determine actions that bring losses and those you take that result in profits.
A trading journal is so important that you can also record your emotional state before making a trading decision. Were you happy or sad before looking at the charts? Was your mental health not clouded at that moment? Did you work out or carry out some exercises to get you prepared for the day? All these and many more are some entries you can import into your trading journal.
5. Take a Break
One vital thing you should do after a significant loss is to take a break. Revenge trading is an easy way to keep losing, especially when you try to regain what you have lost without properly understanding what made you lose it. The first place.
Take a break, relax, return to the drawing board and apply the earlier strategies. If you are feeling stressed or overwhelmed, the best alternative is to rest. A clouded or overworked mind cannot think clearly about certain trading decisions.
Also, it would help if you didn’t begin trading immediately when returning from a break. Start by back-testing your strategies and ensuring that your trading tools function effectively. You can begin trading your real account once you familiarize yourself with your skills.
Bonus Tip: Start With a Smaller Account
If you were trading a bigger account before the losses, you could try finding a smaller account and employing it to master your strategies. A smaller account helps you backtest your strategies, helps you apply your risk management plan effectively, and restores your trading psychology.