Trading inevitably involves losses. With time and practice, traders will learn how to tolerate and learn from them.
A significant trading loss may be disastrous, not just financially but also emotionally.
Losses are demoralizing, but how we handle them is more crucial than the loss itself. When inexperienced traders suffer a significant loss, their emotions may take over.
Some people may attempt to trade through their suffering by rejecting it, frequently making things worse for themselves.
Some people would retreat, wiping the loss under the rug to keep from reflecting on it. Some people would forge forward and try to "trade better," anxious to make up the loss.
Following a loss, effective traders follow these seven stages to become emotionally stronger and more controlled:
1. Accept accountability: Be careful to own your part in the loss. Don't ignore it, run away from it, or attribute your loss to "smart money." Instead, you want to manage your trade, which is what ownership gives you.
2. Stop Trading: Figure out what went wrong by reviewing events cautiously. Analyze where you fell short. For instance, did you take too much risk? Have you planned your trading well? Were you mentally alert, or did you hold a potential losing trade, hoping to avoid necessary losses?
3. Plan ahead: Create a thorough action plan for upcoming deals. Your strategy should contain what you will do differently (such as setting and adhering to a halt) and what you will no longer do (e.g., holding a loser, hoping it will return to break even).
4. Develop a better strategy: Can you pinpoint elements from this trade that may be applied to turn the trading situation around? The loss will be treated as a stop-out by good traders, who will wait for another chance. If market conditions allow, better traders will reverse their transactions, add gains to their bottom line, and recover their initial loss.
6. Be motivated: Use this loss as an opportunity to study and advance your trading abilities. The top elite sportspeople become ecstatic when they identify a flaw in their play. They utilize the fault as a motivator to get better.
7. Re-enter the game: by trading when you've finished your rehabilitation work. You're more cognitively capable and ready than you were. Put your positive thoughts into action while letting go of the loss.
FINAL INSIGHT
How traders handle trading losses is a critical distinction between successful and unsuccessful traders. Losses are viewed as a chance for profitable traders to grow and learn.
Even if recovering from a sizable loss is difficult, success is never achieved by downplaying, ignoring, or retreating from trading losses. Losses may be opportunities to improve as a trader, particularly sizable ones.
All of these responses could be more productive. However, they could only be harmful if you understand how to deal with lost deals. Following trading decisions are emotionally charged and might result in irrational behavior.
Depending on the trader, they may overtrade, overstay poor positions, stop winning trades too soon, or do other unproductive activities out of concern about future losses.
