How To Recover From Big Trading Loss(Experts Guide)

A massive trading loss is a devastating experience. A trading loss can be the result of stubbornness and lack of discipline, where you disobeyed your stop loss, averaged and it went against you. Sometimes it can be by bad luck. Whatever the reason, it’s always a huge blow to your self-esteem.

99% of traders have dealt with a huge loss at some point in their career, so knowing how to prevent and recover from them is key. The recovery phase is not an overnight process and you need to have specific procedures in place to get your business career back on track. These 7 techniques will help you bounce back from a big trading loss.

Start Immediately or Take a Break?

Assessment required before proceeding. You would be inclined to think that a day trader is familiar with taking losses during the day, so they should be able to handle even significant losses.

The truth is that it is not the same because the magnitude of the loss makes a big difference psychologically. Imagine the trivial “loss of a dollar vs. losing 100 on the street” – would it have the same effect on you? We bet they won’t.

Here, losing large amounts during a business day can bring other negative effects, including revenge trading (something that can be disastrous for your account). Therefore, in the first tips you will find exactly what to relax.

Good Losses vs. Bad Losses 

Not all losses are the same. There are good losses and bad losses. This distinction is independent of the amount of the loss, but of its circumstances.

Good Losses are those that are caught on time, as planned, according to your trading plan. In other words, you have already anticipated what can go right and what can go wrong in the trade, and you have taken prudent steps and executed a stop-loss because the trade did not go according to plan. This is a good loss because you were prepared for it and you reacted.

Bad Losses are those that are caused by fear, panic, and/or panic when you deviate from your trading plan or didn’t even have one to begin with. This may be the result of impulse trading driven by fear of missing out (FOMO). Impulsively jumping into the store and pushing through the initial concessions until the pain was too much to stop in panic. Sound familiar? It happens to everyone sometimes. Everyone has bad losses. The key is to recognize them and learn from them. In fact, bad losses can be some of the most valuable lessons because they are the most painful types of losses. Pain is a great teacher if you listen.

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How to Recover from Big Trading Loss

Now we are going to break down the details into 7 simple steps you can take.

Step 1: Take a Break From Trading

A big loss is very stressful and you don’t want to compound that stress with more losing trades. So you need to stop trading and investigate why you had such a big loss. If you continue to trade, it is very likely that you will continue to be frustrated and lose even more money.

It also helps you get out of an environment where you have had losses. So go to a coffee shop or sit in the backyard while you do these steps.

Step 2: Accept Full Responsibility

To improve your results, you will need to take full responsibility for your actions. The great thing is that when you’ve created the problem, you can also create a solution to fix it. Once you’ve accepted that, you’re ready to move on to the next step.

Step 3: Review Your Trading Journal

This is a step that most blog posts skip. Reviewing your trading journal is the key to finding out why you lost so much money and how to prevent it from happening again in the future.

You can’t figure out the problem if you don’t know the cause. And you can’t figure out why without looking at your store statistics.

Without a log, you’re just arguing about the source of the problem. For example, you may think your trading system is the cause, but the cause is actually your lack of discipline.

What if you didn’t keep a trading journal at the time of the big loss? Review your trade history and take screenshots of each trade. Compile statistics of all your trades. Create notes for each trade. Of course, you won’t be able to remember everything, but try to write down why you entered, exited and adjusted trades.

Once you have this information, it’s time to dig deep into the data and identify the problem.

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Step 4: Identify the Specific Issues

At this point you should have a very good idea of ​​why you had such a large loss. Let’s look at some of the most common reasons why traders lose big money. This list may help you realize a reason you may have missed.

1. Moving the stop loss
2. Taking too much risk on one trade
3. Not having a tested trading strategy
4. Not following the rules of your strategy
5. Taking trades that are not part of your strategy
6. Adding more positions to a trade
7. Not having a written trading plan
8. Trading too many markets/trades at the same time
9. You have to work on your psychology

Write down the biggest reason you had a huge loss. The more specific you can be, the better.

Step 5: Develop Specific Solutions

Okay, we give you some solutions for each of the causes listed in the previous step. Many of these problems are easy to fix once you know what they are.

Not Having a Tested Trading Strategy

This is the most common reason for large trading losses. New traders will trade without a tested trading strategy. They learn a new strategy on YouTube and then immediately jump into trading on their live account. But how do you know that a strategy is really profitable? Are you going to trust a video just because it showed you a few well-chosen examples and had beautiful graphics? Of course not.

That would be like believing a luxury TV ad that says a car is super reliable when the car company has only been around for 6 months. There is simply no data to support this claim.

You need to test the strategy to see if it has worked over a long period of time. In this tutorial, you will learn how to perform a backtest. In many cases, you should also test the strategy beforehand.

Once you have historical data that shows a strategy is profitable, you will have more confidence in your trading and know when the strategy has stopped working.

Moving the Stop Loss

This can be a big deal for some traders. They want to give the trade “a little more room” so they keep moving the stop loss to have a better chance of the trade coming out.

When you place a trade and set a stop loss, you lock in a fixed amount of risk. If you move the stop loss, you add more risk to the trade. Even if you have tested your strategy, it will not perform the same if you move the stop loss because you are changing your risk parameters.

The bottom line is that moving your stop loss to create a bigger potential loss is never a good idea. So you have to choose whether you want to be a successful trader or you want to move your stop loss and continue to experience big losses.

Taking Too Much Risk on One Trade

Traders are so confident that the trade will work that they risk a large percentage of their account on 1 trade. They never stop to think about what happens when the deal doesn’t work out.

Remember, if you lose 50% of your account, you will need to make 100% profit to break even. This can be challenging even for the best marketers in the world.

So keep your risk low and either work to have a high win rate or have the winners far outnumber the losers. Remember that trading is about getting rich over time, NOT getting rich quick.

Not Following the Rules of Your Strategy

Trading that is not part of your strategy is due to a lack of discipline. An effective way to change this is to remind yourself of how painful your great loss was.

Then imagine the opposite. Imagine yourself as a successful businessman. Look at the house you would live in. Imagine the car you would drive. Your long-term bottom line is the result of every single trade you make.

The practice of pyramiding, or adding to a winning trade, is something that many successful traders do. But if you get it wrong, it will only compound the losing trade. So again only a pyramid if you have tested the strategy. If you’re adding multiple lots to your trade at random, then that’s a recipe for disaster.

Do not add to winning trades unless you have a profitable strategy without additional trades. Only introduce pyramiding after you have tested the pyramid strategy and shown that pyramiding makes the basic strategy more profitable.

Trading Too Many Markets/Trades at the Same Time

Having too many trades open at the same time can lead to a loss of focus and a large loss. This can be very discouraging and lead to a loss of confidence and a downward spiral of losses. Here the solution is simple.

Limit the number of stores you can have open at the same time. Most traders limit the amount of risk they take per trade. You probably already do that. Now limit the amount of open risk you have at any one time.

Let’s say you want to limit your open risk to 10% and you risk 2% per trade. This means you can only have 5 trades open at a time. Using a very simple formula like this will help you keep your risk under control and avoid big losses, especially in correlated markets.

You can also limit the number of trades you can have open regardless of risk. So maybe you set a limit of 5 open trades. This allows you to focus on managing those trades and not lose a lot at once if they all end up losing money. It will also help you keep your sanity.

Not Having a Written Trading Plan

Having a written business strategy is essential to success. When you trade multiple strategies or have tested many trading strategies, the lines between strategies can become blurred.

It can be easy to forget the rules of the strategy you are trading live. Therefore, having a written business plan is essential to maintain consistent results.

If you forget your rules, you can always refer to your schedule. By checking your trading journal, you will also be able to see whether you have followed your trading plan or not.

You Have to Work on Your Psychology

What if you now know what to do but can’t seem to do it? You find yourself entering random trades when you know you should be following your rules.

Then there is a problem with your psychology. This is a very deep topic and beyond the scope of this tutorial.

Step 6: Start Trading Again, But Keep It Small

Once you have your plan in place, now is the time to get back to trading. Then suggest starting small and gradually working your way back up to full size. It’s like an athletic injury.

Let’s say you hurt your knee playing basketball. You don’t start playing basketball at full speed right after recovering from an injury. The smart thing to do is make it easy to get back into the game. Then, once you’re sure you’re fully healed, you can start playing again.

When trading, the equivalent is to trade a fraction of your normal trade size. For example, let’s say you typically risk 2% on each trade. While you’re getting back on your feet, consider risking just 0.5% per trade. Once you get your confidence back, you can go back to risking 2% per trade again.

Step 7: Continue to Track Your Results

Once you are trading profitably again, your work is not over. Continue to log your trades and track your performance. Check your performance regularly if it makes sense for the way you trade.

If you trade frequently, check your journal once a week. Do you not trade that often? Then a monthly revision is probably enough. By staying on top of your results, you will be less likely to make the same mistake that led to your huge loss.

In conclusion, recovering from a trading loss is not easy, but it is possible with the right strategies and mindset. By consistently following risk management techniques such as setting stop-losses and diversifying investments, traders can prevent a single loss from turning into a chain of losses. It is also important to focus on rebuilding your financial and mental capital after a loss. This can be achieved by setting small, achievable goals, seeking support from others and learning from your mistakes.

Key points:

• Consistently follow risk management strategies to prevent losses
• Take care of both financial and mental capital after a loss
• Set small, achievable goals and seek support from others
• Learn from your mistakes and move on