Taking Big Losses

And Recovering

Dealing with Losses

We’ve all been there. And they sting. They usually come from a catalogue of human errors too. Wrong trade idea, too much size, maybe a bit stubborn. Or perhaps just ploughing ahead over the period of the month with a losing strategy and a hint of desperation…

Suddenly you look round and see a horrible loss staring you in the face. Resist the urge to make it back. You’re hurting, it’s uncomfortable, and your mind wants to get out of that discomfort asap. And it thinks the best way to do it is to trade often and big.

No.

You must resist that urge. The lizard brain can’t see the bigger picture. It feels pain and comes up with a way to avoid it.

First things first. Stop and acknowledge. Just shut down the broker platform, wire out your money, and breathe. (Wiring out money is optional but this puts an extra layer of protection in if you think you might be tempted to trade.)

Let the feeling dissipate a bit. It feels sh1t I know, but time will make it easier.

The Path to Recovery

Once that feeling of disgust, shame, and sadness has subsidised it’s time to grab the experience with both hands and learn. This is an opportunity. Your job now is to audit what went wrong. But be intentional here.

Not the losing trades per se, but at what point could you have stopped the damage from becoming too much? There’s always a step too far that takes you into a loss more than you wanted. And there’s nearly always a trigger event.

  • Was it a trade with too much size?
  • Was it a string of losers?
  • Was it breaking a golden trading plan rule?

Identify that fork in the road and come up with a solution. What can you implement that will prevent this from happening again? Then when you are ready get back on the saddle.

Trade small
Nothing wild
Layup trades

Get back some momentum and before you know it you’ll be well on your way to recovering the loss. Then when your equity is back to where it was, you are in an even more powerful position. You have successfully recovered from a nasty drawdown with careful and considered planning. 

And that is something you’ll have with you for the rest of your trading career. Now you’ll operate with a real sense of confidence… You can recover from drawdown. There is no need to fear anything.

Until next time, trade without fear.