Let’s face it; we all have been a part of this frustrating, harsh reality at some point in time. Every trader (even the best in the game) faces a couple of trading losses in a row at some point in his/her trading. Coming out of those losses successfully is a challenging task, especially if you have suffered or are suffering a major loss in your trading account.
Trading losses severely affect your performance and cloud your judgement. You lose your confidence and start doubting yourself. Sometimes, it can take you so low that you start to think that you’ll never get out of the loss and that you have lost your touch.
However, with the right strategy and a careful follow up of a plan mentioned below, you can recover your losses and start making those profits.
Here are five steps to recovering your trading losses:
Exit Losing Positions:
First and foremost, close all the existing trading positions, even though you are suffering losses in those trades. This will lift a huge burden off your chest.
Contrary to this, many people start increasing their risk amount thinking the profits from this trade will make up for all the losses. This strategy can be devastating and can possibly ruin your whole trading capital. The best way to end a losing streak is to cut your losses and stop the bleeding.
Remember, the market is not going anywhere! You can always make up for your losses and make profits once you have regained your touch.
Take a Break:
When you are going through a losing streak, your emotions have taken over your intellect. You have lost your objectivity. So, taking any trades at this point in time could be risky.
The best thing to do is to take some time off from trading and regain your composure. Take a break, relax. The brake could be for a couple of days, a couple of weeks or a couple of months. Use this time to relax, clear your head and regain your energies.
This seems simple advice, but can be difficult to follow when suffering from severe losses. Often times, it is difficult to stay away from the market.
This is a crucial step in the process. After you feel that you are quite relaxed and are ready to think objectively, start an assessment of your trading. This includes analyzing your trades, finding out your winning trades and your losing trades, noting the mistakes that you have done in those trades and assessing your methodology.
Find out what you need to do in order to do avoid these mistakes. Maybe your entries are not as precise, or your exit strategy is not right, maybe you should stop buying at the market.
Perhaps, your methodology is not working anymore.
After all this analysis is done, prepare a working plan to enter, hold and exit a trade.
Also Read: Top 5 Trading Mistakes: How to Avoid Them
Start Fresh by Taking Small Positions:
Once you have digested your losses, gone through a period of preparation and feel comfortable with your methodology, you’re ready to start trading again.
Start by taking smaller positions than you usually take, so that you don’t lose any considerable amount of sum. This ensures that you do not suffer from the fear of losing a big amount. Your focus should be on being profitable rather than making a killing. At this stage, you should protect your capital and trade carefully.
Make small profits, then some small profits and again some small profits. This is to regain your confidence because remember, confidence is essential for a trader!
If for some reason this process doesn’t work initially, try it again by using deep stop losses, and trading with an even smaller risk amount.
Continue doing this until you have recovered all your losses and you reach an equilibrium.
Go All the Way:
After recovering all the losses, it’s time to switch gears and go full throttle. You can now start taking trades with your usual position size. If you feel confident enough, you may consider pyramiding in a winning trade.
Losing streaks are an unfortunate part of the game, but if you are a well-disciplined trader who can follow the steps mentioned above, you can recover your losses and start trading confidently and profitably.