Losses are extremely common in day trading. In fact, it is estimated that most of the people who start their career in trading You usually lose money and exit from the industry.
Losses also happen to the best traders in the world. History is full of experts who have lost a fortune in the market (see Warren Buffett and Ken Griffin).
So, since losses are inevitable, here are some of the top ones Things to do to recover when these losses occur.
Related “ Have you suffered a loss? Don’t give up!
How to prevent big losses
Before we get into how to recover from a huge loss, it’s important to take a look at some of the top points Tips for preventing major losses in the first place. Fortunately, the stock market and forex offer many options Ways to reduce risks In the market.
First, always analyze the risk/reward and use stop loss and take profit. Stop loss is a tool The trade stops automatically When it moves to the maximum loss zone.
For example, if you place a buy trade at $20, you can set a stop loss at $17. In this case, what will happen is that your trade will be stopped once it moves to $17.
Alternatively, you can place a trailing stop loss, which moves with the trade. The benefit of a trailing stop loss is that it locks in profits in the event of a significant drawdown.
Related “ Best stop placement strategies
Secondly, you should always have a take profit, which is the opposite of a stop loss. The tool stops trading automatically when it reaches your target.
Moreover, as a day trader, you should Do your best to avoid a situation where you have open positions overnight.
This is risky because you have no control over when you are asleep. Also, it is common for stocks to have up and down gaps when the market opens.
Related “ How night work can gauge market sentiment
1. Take responsibility
The first thing you need to do after a big loss is… Take responsibility for the situation. In this case, you should work on Determine the reason for the loss in the first place. There are many things that can contribute to this situation.
First, the loss can occur due to Unexpected event In the market. For example, in early 2020, no one was prepared for Covid-19. Likewise, in early 2022, it was almost impossible to predict whether Russia would invade Ukraine and the aftermath of the invasion.
Even though these events are unpredictable, it is your duty to have risk management tools and strategies active at all times. It may not prevent you from losing, but at least it helps you mitigate its effects significantly.
Secondly, a significant loss can occur when Your thesis is wrong. For example, you can predict that a stock will go up after VWAP crosses it only for it to reverse. Similarly, you can place a long trade when the stock makes a double bottom pattern only for the trade to reverse.
Moreover, loss can occur when Economic data or financial results come against expectations. For example, you may have made a trade with the hope that the company’s earnings will be positive. In this case, the opposite may happen.
Also, it could be a loss Inflate it by using excessive leverage. By conducting this review, you will be able to identify the source of the loss and then learn how to correct it in the future.
2. Rebuild trust
In most cases, traders tend to be Emotionally overwhelmed after a great loss In the market. In such periods, they can then make bad decisions like Trade revenge And on trading Try to make up for your losses.
Such things can lead to huge losses in the market. You can also start exiting your trades early and leave money on the table.
Therefore, what you need to do is rebuild your self-confidence. There are several ways to do this. For example, you can rebuild your trust with a Demo account To test your trading strategy.
A demo account is a simulator that allows you to trade using virtual cash. As such, you should spend a lot of your time testing the strategy and even creating new strategies.
3. Reset your trading goals
The next strategy for moving on after a big loss is Reset your trading expectations. Since you are now rebuilding your account, we recommend that you reset your trading goals (even daily goals) as you move to rebuild your trading career.
There are several things you can do in this situation. First, if your goal is Generate double-digit returns Monthly, you should reduce these expectations because you will be starting small.
Secondly, you should start with Reduce your trading volumes. For example, if your trading strategy involves buying $200 per trade, you can reduce the amount to $100.
4. Use copy trading
finally, if Do you believe this I’m not psychologically preparedThe other thing you can do is Focus on copy trading. This is a trading strategy that involves mirroring the trades of other experienced traders. As such, their trades will be reflected in your account.
A good way to deal with this is Select two or three accounts to copy. The benefit of copying a few of them is that it will Help you diversify your account.
Another benefit is that it allows you to Use the experience of others To make money in the market.
Moving on after a big loss It’s not easy. Anyone who has been in this situation will tell you how difficult it is. Some people even get it frustrated when that happens.
So, The recovery process may take some time. Using some of these tips will help you avoid making major mistakes as you rebuild your career.
Useful external sources
- How do you recover emotionally from huge losses in the stock market? – Quora