Large trading losses. How do you overcome them

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Large trading losses. How do you overcome them?

If you ask any trader what their ideal online trading career would look like, they would answer that they would generate a generous stable income without losing their deposit! This makes complete sense and reflects every trader’s drive for success and material gain.

However, it isn’t possible to trade on the financial markets of any exchange or over-the-counter tool entirely without loss. Every investor regardless of their experience or level of professional knowledge encounters losses, at times even significant losses of capital. In our article, we decided to address problems connected with the loss of capital, not only purely the technical points, but the psychological aspects of trading that arise in such a complex situation. Our recommendations will enable you to overcome not only financial problems but the stress that accompanies troublesome periods of trading as well.

So, the first step to overcoming the loss of a significant amount of funds is to work out the reasons and factors that lead to the large financial loss.

What factors influence trading losses on the financial market?

When beginning your analysis, the main drivers affecting your trading losses on the financial market, it is worth noting that few of the issues will be purely technical, more likely than not it will all be directly connected the discipline of the investor themselves. What do we typically see in terms of trading habits of practically every new investor? It’s quite simple. After having read through several ads and done some cursory research, potential traders weigh up the possible significant financial gains of trading on the market. Then, what do these beginners do? They open up a live account, often using as large a sum as the private investor can manage, and start trading. There is nothing wrong with trading with a large deposit, the issue is in discipline and their lack of professional knowledge. They have a poor understanding of managing risk and capital. Beginners often begin trading with contracts with increased costs, ignoring the general agreed-upon rules for managing money. Then, as a result of several unfavorable trades, they lose too much and leave the market disappointed. This kind of greed and egotism specifically are the main enemies of inexperienced traders.
The first thing that potential traders need to understand is that every trading tool carries with it the risk of losing capital and a negative expectation of generating profit. Meaning that from the start all contracts should be considered as losing ones, and only after analysis and discipline on the part of the investor can the odds be changed in their favor. In terms of purely mathematical categories, the statistical expectation of profit on the financial market can be simply described by looking at short-term contracts as an example.

This term describes the difference between the level of profit and loss in a trading operation. If we were to take the typical parameters of a short-term contract, its profitability would be 85% and the risk of loss would always be 100%. So, from the start, every contract carries with it a 15% loss, thus a negative expectation of profit. This indicator has a significant impact in these conditions on the final financial result. To give the most example, with $100 dollars of capital, traders use $30 dollars in trading positions. As a result, an inexperienced trader can open no more than 3 positions! After even 2 losing trades, the investor will lose a critical amount of their capital and be unable to continue their market activity.

Money Management

Traders use money management as their primary approach to decreasing losses. It is a set of restrictions limiting the cost of contracts. The simple principle of striking the optimal balance between the total capital and the cost of a contract is applied here. Typically, the following indicators are used in money management:

● No more than 5% of your total capital should be tied up in contracts
● When trading with meager means, only place trades that require minimal investment

When you trade with minimum contracts you protect your capital and add security to your trading regime without disrupting the optimal dynamic of profit growth.
However, money management isn’t the only way to limit your losses. There are some purely technical points of trading that work great, such as strategies for analyzing market indicators and forecasting rate movement.

Trading systems

In order for your account to grow stability, as a trader, you need to adopt a system of analysis. An important aspect to consider is the effectiveness of the analysis approach, it shouldn’t be lower than 65%. These days it isn’t hard to find a good system, as there are hundreds of effective strategies available online.

So as to best maximize the profitability of your trading operations, you need a full range of analytical approaches. We recommend adopting various technical analysis approaches, such as indicator format systems, trading strategies on a clear chart, and a variety of trading approaches to trends. The wide variety of trading systems available enable you to generate profit under completely different market conditions and from the vast majority of assets.

Invest with a variety of tools

More often than not, the main problem is that investors trade with only one asset! This can be explained psychologically. The issue is that, when you trade with only one tool, you begin to have the illusion of understanding the market of that specific tool, that, according to traders, you can use as an effective approach to rate movement analysis. It is a lot more complex than it seems. The chaos of the market and the combination of the different drivers that influence its movement aren’t open to guesswork or simple prediction. At the same time, by only trading one asset, you take on the highest level of risk. Therefore, it is recommended that you create an investment portfolio with diversified risk to trade most effectively. In practice, it’s all fairly simple to apply. You, as the investor, should use various assets, lots with a wide range of profit indicators and expirations, so as to create a portfolio of trading rates.

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When you learn the difference between volatility trading tools and forecasting rates, you’ll have an investment portfolio with diversified risk, in which profitable contracts neutralize the losses from other trading positions.

Hedge Your Contracts

Hedging, or technical insurance of trading positions, is a very effective method for managing losses and earning additional profit. This is done with a reasonably wide range of methods:

● Trade on assets that have a high level of correlation. In this situation, related trading tools are used with one another. As a simple example. take currency pairs. So, for example, when there is growth in the EUR/USD, we often observe a decline in assets, such as the USD/JPY and the USD/CAD as well. Therefore, when opening lots on the EUR/USD pair, we can, with the help of related assets, gain insurance against losses from the contracts below. Using this approach enables you to not only decrease trading losses but also to gain additional favorable positions.

● Averaging is a logical method of forming lots on main trending and locally-correcting market fluctuations. Lined up, the price rates form persistent trends, as well as local corrections. These various fluctuations specifically enable you to apply approaches like averaging positions. It all works fairly simply. Let’s assume that you bought, but the market began to perform a local correction down. When the correction takes place, open several trades in the direction of the main trend. As a result of the price returning to the direction of the trend, you gain a series of profitable positions and a handful of losing contracts or may escape without any losses. In any case, the general indicator in terms of results will be positive.

● Martingale, a purely mathematical system for minimizing loss, uses a simple approach for doubling your total trade lot after a losing position. Therefore, to double the profitability of our position, we decrease the loss of the first contract and expect an increase in capital. It is worth noting here, that Martingale is a fairly controversial system and one which professional traders aren’t all that sympathetic to. The reason for this is Martingale’s complex working algorithm. The problem for inexperienced traders lies in the significant increase in the original trading lot against the backdrop of an increased total number of contracts. In such cases, investors experience critical losses of capital. Therefore, when using Martingale, it’s vital to err on the side of caution.

Let’s go through the conclusions thus far. In trading, there are many technical drivers and factors that influence financial losses. However, at the same time, there is a wide selection of approaches available for resolving such problems. In order for them to be effective on the financial market, first and foremost, you need to thoroughly study all the available systems for managing risk and limiting losses, and follow them without exception.

That being said, as we noted at the start, it is impossible to completely avoid losses! If you experience financial loss and your continued presence on the market is threatened, we have the following recommendations for you.

How do traders get over a loss?

If you experience a significant loss of capital when trading, we recommend that you take the following approaches that will enable you to resolve any psychological problems or difficulties:

Change your attitude to losses!

Every person’s experience shows that disappointing results or events build vital professional skills. It is impossible to trade on the financial market without making mistakes, although these mistakes give you invaluable experience for future activity. Change your attitude to loss and consider it as the price for experience and possible future profit. By doing this, you will set yourself up well on a psychological level for trading.

Communicate more often with fellow traders!

The vast majority of traders to try hide it when they experience losses! This further escalates psychological problems. Return to professional spaces, confide in your fellow trader about your problem and ask for their advice! The most effective thing to do is to collectively analyze your mistakes with fellow traders. This not only unburdens you psychologically, but it also creates the possibility of adding to your own approaches to trading

Don’t rush to repeat your mistakes!

After having experienced a large loss of capital, the vast majority of traders start to make even more mistakes. Yes, of course, the emotional dynamic of trading is important. It isn’t worth trading when you are extremely frustrated or distraught. If you immediately replenish your account and start to frantically try to regain your losses you’ll just lose even more! The first thing you need to do is calm down. Analyze your mistakes, come up with a new trading plan and set goals. Follow the steps in your plan and test out your strategy on a demo account. Then move on to trading on the market with minimal capital. Only a calm mild will allow you to rationally evaluate your strengths in trading. You’ll be rewarded with increased profits by doing so.

Don’t ignore customer support!

Despite the close partnership with various trading platforms, the vast majority of traders view them as the enemy. This is typically reflected in the unwillingness to work with customer support and ignoring any recommendations from them. This is wrong. The opportunity to talk with professionals opens a wide range of possibilities for stabilizing trades’ mental state. If you have partnered with a quality professional platform, then don’t treat customer support representatives as your enemy. Be friendly with company managers and they will give you vital recommendations for improving your trading.

Get help!

Without a doubt, if you can tell that your problem isn’t resolving itself and your problems with losing funds are out with typical psychological outlook, you need to seek help from a specialist. Understand that many view trading as a form of gambling and many investors are simply taking too much of a gamble. Your complex state of mind could become a sign of a more serious. Therefore, don’t hesitate, seek professional guidance!

Psychology plays an important role when trading on the financial market. This is why investors who keep their cool in stressful situations, such as serious losses of capital, can highly influence their future market activity. Be careful and always be honest with yourself about your mental state and technical abilities. The market isn’t forgiving!

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Bouncing Back After a Big Trading Loss

Whether it was a technology meltdown, a lapse in discipline, or just a sustained bleed out of trading capital, nearly every trader will face a big loss (or several) in their career. How to bounce back after a big loss isn’t complex; it can be done with a few simple steps. What is difficult is repairing the mental damage done, especially the damage to confidence.

While overconfidence is blinding, successful traders don’t trade in fear, because fear is also blinding. That level of confidence where you see the market for what it is, step in whenever there’s an opportunity, cut your losses when it doesn’t turn out, and sit on your hands when conditions aren’t right—is the confidence that can be lost after a losing streak.

After a losing streak or big loss, you may begin to question yourself, which leads to all the typical problems many new traders have, like getting out of trades too quickly, holding on to them too long, skipping trades with the fear of losing, or getting into more trades than you should in an attempt to get some winning trades. If you experience these issues or suffered a significant loss of capital, there are ways to get yourself back on track.

The Day of Your Loss

Every trader has bad days. As a rule, never let a bad day cost you more than you make on an average profitable day. If you average $700 on your winning days, don’t lose much more than that on a bad day. Control the downside.

A big loss causes all sorts of inner conflict—a need for revenge, fear, anger, frustration, self-hate, market-hate, and the list goes on. After a big loss, there’s no way to trade with a clear head. There are more than 250 trading days in a year, so there is no rush to get back in there; today is not the day to make it back.

Accept Responsibility

Maybe it was just a bad few days, maybe it was your biggest single loss ever, or maybe it’s a life-altering loss. In the latter case—facing financial ruin—there isn’t much to do. Don’t trade until the issue is resolved. Once it is, then you can proceed to the steps below, but not before. Don’t trade with a massive debt over your head with intentions of using it to abolish that debt; that’s a lot of pressure and could lead to a worse predicament.

If you have drawn down your account, had a losing streak, or suffered a big sudden loss, that’s different. You’re still in the game, just a little beaten up. Everyone loves a comeback story, and every trader who has been around a while has one (or several). It doesn’t matter if a surprise news announcement caused the price to blow past your stop loss, or a technology meltdown caused you to lose your connection and the market moved against you.

There is always an excuse for a losing trade. Some are actually good excuses, but as traders, we ultimately must accept all the risks. Until we accept that we are responsible for whatever happens with our orders, history will likely repeat, and the same thing will happen again.

Accept responsibility and figure out what could have been done differently. This will help reduce the chance of it occurring again. It is also healthier than bottling up hostility and blaming others for your misfortunes. Blaming others is admitting you don’t control your own trading, and if that is the case, why are you trading? If you control your trading, then you can fix it; if others control your trading, you can’t fix anything.

There is always something that can be done. It may involve changing markets, having backup data connections, having stop-losses and targets automatically sent out when a trade is entered, or maybe you set up your platform to liquidate your trades if you hit a daily stop-loss limit. The solution is there; you just need to find it. The best way to find it is to admit that the loss resulted from not handling something well, and then taking steps to fix it.

Fixing the particular issue that caused the loss is step one. There’s still the issue of confidence, though. Even with the issue fixed, your confidence may be low after taking a big hit.

Realign Your Focus

When you started, you were likely overconfident, but then the market put you in your place. You developed healthy confidence over time by building your trading system, testing and practicing it, and then ultimately utilizing it for successful real-money trading. Confidence is created by doing difficult tasks and getting better at those tasks, and in trading, our task is to implement our trading plan. Confidence grows as we see positive results coming from that trading plan.

After a big loss, get back to basics. Focus on the trading plan (with any adjustments made to it) and your implementation of it. Get back to what attracted you to trading in the first place: building or learning a strategy that made money consistently. Trading is hard, so get back to loving and embracing the challenge. A string of good times can make us lazy, and often a big loss is the wake-up call. It’s the market letting us know that we have drifted off course.

Practice and Rebuild Confidence

After a big loss, confidence can be low. That means the mind may not be right for trading. Not having a clear mind can cause you to skip trades, panic out of trades (trading not to lose), or be overly-aggressive in an attempt to get back to your old winning ways quickly. None of these are good. Take a step back and trade in a demo account for a few days. If you have been losing, you will likely save yourself money. Because it’s not real money, there is also less pressure in a demo account, so it is easier to focus on trading, and not worry about the financial aspect of it.

Start Small

A few winning days in the demo account will raise your confidence levels and put you in a better mental space to take on the markets again with real money. After a losing streak, start small; don’t jump right back to the same position size you were trading before. On the first day back, trade a small position size. A winning day with a small position size will help build confidence, and you can increase your position size the next day. If you have a losing day, losing on small position sizes is easier to handle than another losing day on full position sizes.

Get back into live trading at a slow pace. If you’re feeling really beaten up, spend at least 2–5 days in simulation, and when you switch back to live trading, start small and increase position size when you have winning days. Even if you win a few days in a row, increase your position size incrementally, so it takes about a week to get back to your full position size. I’ve seen people try to rush back into live trading after a big loss, and they weren’t ready. They ended up losing more. Some traders repeat this cycle and never recover.

After you have traded bigger position sizes, it’s annoying to start back with a small position size, but it’s for the best. Bouncing back from a losing streak is about getting back to basics and implementing a strategy well, not actually about making money. Money comes from implementing a strategy well. Demo trading and trading small position sizes gets you refocused on what’s important, so you can start building your confidence again. The money will come, naturally, without being forced.

The Bottom Line

If you’ve just taken a big hit, stop trading for a couple of days. When you come back, look at your trading plan and your trading and address issues as to what is causing the problem and make any necessary trading plan changes. Then trade in a demo account for a few sessions to help build confidence. Only switch to live trading once you have a few profitable days and are feeling more like your old, successful self.

Trading Losses: How to handle them like a pro…

Trading losses are guaranteed, yet for some reason, new or struggling traders seem surprised when they happen.

A few years ago I was hosting a seminar in NYC and I asked this question to the room:

Is placing a trade, accepting risk?

I asked for a show of hands to see who believed this was true. Virtually every hand went up.

OK, that was the answer I expected (which is the wrong answer)..

On to question #2:

Have you ever moved or cancelled a stop-loss just as it was about to get hit?

Again, most traders in the room admitted to this attempt at avoiding a trading loss. So many traders agree it looked like the room was doing the wave.

And this is why most traders have a problem with trading losses. They never expect to have them.

Here is the reason why, this hidden flaw, prevents a trader from succeeding.

Placing a trade is not accepting risk. Placing a trade is taking risk.

If a trader truly accepted risk, which means accepting the possibility of a trading loss, before the trade, the trader would never move the stop-loss or cancel it. This is because prior to the trade, she accepted the dollar amount at risk, in exchange for the potential profit.

In other words, you accept the risk/trading loss as a business expense . And if it happens you simply move on to the next trade.

Trading Losses: Connie Consistent Versus Struggling Steve- a Matter of Belief and Track Record

Ever wonder why trading losses don’t seem to bother experienced traders as much as new traders?

Think about running another type of online business. If you had a track record of consistent revenue, would it bother you to spend money on marketing?

Of course not. At that moment, you believe you can spend money to make money. You believe you can produce profit.

The trader/entrepreneur believes this, because she has a track record.

New traders don’t have this belief, because they don’t have the track record yet, so trading losses take on a much bigger meaning for them.

So how does struggling Steve become Connie consistent? With a trading plan. A trading plan is a script. A script for profitable ideas.

Dependable trading revenue is a direct result of having a structure for producing winning trades. If you’re winging it” you don’t have a plan. If you are inconsistent, you don’t have a plan. If you have a plan and you’re inconsistent, my guess is you have more than one strategy.

Stick to one strategy, test it, improve it and and own it before you move on to multiple strategies.

Before a trader can accept losses flawlessly, they need to believe they can produce profits. Otherwise every loss is a life and death, roller coaster of emotions.

To produce profits, consistent profits, and then big profits, you need an edge, a strategy that gets molded and adjusted into a trading plan that matches your unique goals and resources.

When a trader reaches this stage, trading losses are a business expense. Expected and accepted.

Trading Losses: Some other perspectives on the topic…

How to Overcome Large Trading Losses

A while back I wrote about the worst loss that I ever suffered in financial markets and how I handled that very difficult setback. Recently I’ve heard from several traders who have experienced something similar: having built up their accounts over time, they lost much of their profits in a short period of time.

In the wake of my large loss, there were three steps I took that were very helpful:

1) I stopped trading. I took the time to process what had happened, figure out what I had done wrong, and make radical changes in my approach to markets. When I returned to the markets, it was as a very different trader;

2) I refocused. I used the time away from trading to work on other aspects of my life and career. In doing that, I remained opportunity-focused and not regret-focused. I also stayed focused on what I could control, not on what I couldn’t;

3) I used the incident as motivation. The loss was so painful that I made sure that I would never go through such an episode again. I created a new balance between trading and the rest of my life so that I would never be dependent upon trading results for my happiness and fulfillment.

Opinion: 7 ways to survive a painful stock-trading loss

A large trading loss can be devastating — not only financially, but emotionally

As defeating as losses feel, how we react to loss that is more important than the loss itself. Inexperienced traders suffering a large loss can become hijacked by their emotions. Some may try to trade through the pain, denying it, often creating more turmoil for themselves. Some may withdraw, sweeping the loss under the rug to avoid thinking about it. Others may hunker down and try to “trade better,” determined to recoup the loss.

None of these reactions is constructive. In fact, they can be destructive if you don’t learn how to handle losing trades. Subsequent trading decisions are fraught with emotions that can drive erratic behavior. Depending on the individual trader, they may cut winning trades prematurely, overtrade, overstay unprofitable positions, or engage in other unrewarding actions — all done out of fear of another loss.

How I Deal With Trading Losses

“I’m the only person I know that’s lost a quarter of a billion dollars in one year… It’s very character building.” — Steve Jobs

I have to say this up front: I hate to lose. I work very hard not to lose. I have never gotten used to or accepted my losses. As Paul Newman said, “Show me a good loser and I will show you a loser.” The closest I’ve come is that I have learned to cope with my losses in a manner that results in the least amount of lingering collateral damage.

As I see it, there are two types of losses.

The first type of loss is simply a result of the laws of probability and is to be expected if you follow your methodology. I tell my classes that I lose about 4 out of every 10 trades. The novices in the class react by asking themselves why they are taking an investment class from such a loser.

The experienced investors nod their heads in approval. The point is that when I lose, I cut my losses quickly to minimize the costs. When I have a winner, I let it run. It works out to be a net positive as the winners more than compensate for the losers. For you sports fans, another way to look at it might be to ask: how much would a baseball team pay me if I hit only 6 out of 10 times at bat?

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