The Smallest Loser: Learn How to Handle Your Losses

In trading, losses are a guarantee. No one likes losing. Traders in particular work very hard not to lose. As a trader, however, it is essential to learn how to accept losses whether you are a novice or a professional, experienced trader. Learning how to handle these losses is key to becoming a successful trader. Losses do not seem to bother experienced traders as much as new traders. In order to not be fazed by these losses, a novice trader must embody the confidence and the skills on handling loss that professional traders have. This article will outline how professional trader’s psychological response is different and more capable of handling loss than the novice’s; in addition, it will outline a few easy steps that explain how novices too can embody these traits and handle their losses just as well. 

The Proper Mindset: 

Traders will only accept losses if they believe they can come back from them and eventually make a profit from their trades. If traders truly do not believe that they will be able to make a future profit then even one loss can ruin their account. Professional traders, are confident with their own skills and already have a track record of wins and losses. New traders, however, do not yet have a track record or have the confidence that they will be able to produce future profits. For this reason, losses take on a much bigger meaning for newer traders.

Have a Plan:

To produce profits novice traders should create their own individual trading plan. This plan should match their goals and specifically relate to the commodity that they are trading. Most often consistent trading revenue is a result of having a consistent plan that follows a single trading strategy. Traders become a pro at a single strategy by testing and improving it over time, and only after perfecting this strategy will they begin to formulate newer trade strategies. However, there will be times when no matter what the strategy is, traders will lose their trade. Here are a few steps that can help traders recover like a professional. 

3 steps to Recover Like a Pro:

   1.Stop trading after consecutive losses

It takes time to process the loss and analyze what went wrong. It is just as important to adjust the plan if it is not working as it is to have a clear head. Take the time to refocus. 

   2.Make a better plan

Identify what was wrong about the first one and make all necessary tweaks to make it better. The source of trades that strongly work against the trader can often be detected. Are there key market actions (e.g., changes in momentum, volume levels, price activity) that traders can use to their advantage and make a profit from? This find will allow traders to not only figure out why a trade is not working, but it will also give them a fresh, new edge. By re-equipping oneself with this knowledge a trader is far less likely to suffer large losses in the future. More about risk management: 5 Steps to Calculate Position Size Based on Stop Loss

   3.Put the loss into perspective

A loss in trading does not define a trader. What defines a trader is how they approach the market in addition to their attitude when they lose. A true trader will not let losses get them down because that it the way trading goes -you win some and lose some. A real trader will learn from their mistakes and apply that knowledge to their future trades thus improving their trading strategy.

 

Get back in the game: But Start Small

The most important thing for traders to do is apply what they have learned to their next trade. The fear of loss should never stop a trader from continuing their work rather they need to accept that loss is an everyday part of trading. If a trader loses a sizable amount in a single trade then it is best to start small and work one’s way up to making larger trades. Traders should get back in the game with a much smaller trade size than before. This will allow traders to apply what they have learned and see how that knowledge works for them when they make future trades. This strategy allows traders to regain their confidence while once again, syncing up with the markets. Only after this exposure with little capital at risk should traders increase their volume of trade and resume trading.

Summary:

No one likes to lose while trading but with the right mindset and the right plan traders can choose to move forward after suffering a loss. In order to recover like a pro, traders need to do what pro traders do when they lose. Pros do not take losses personally since it is by their definition a part of everyday work; instead, pros stop trading so that they can evaluate their trading strategy and move forward. However, the best way for traders to move forward is to start small which will minimize the impact of the next few trades.

Next Article:

Improving Entry Point and thinking about Risk: Reward ratio