How to deal with losses while trading
The important lesson to remember is how to lose properly in the market. In order to make consistent money and to continue progressing, you have to know how to deal with a loss appropriately and effectively.
Prepare yourself for loss
It’s an instinct inside everyone, learnt through nature, to avoid losses as much as possible. With regards to trading though, this attitude can be damaging to your strategies and trading behaviour. Unfortunately, losses are an integral part of trading – what sets good traders apart is that they’re able to understand a loss, when it may not be such a bad thing, and how to prepare themselves emotionally and strategically.
Predefined calculated losses are trades you may have to make to avoid bigger ones. It helps to teach yourself that losses are a ‘cost’ of trading and to prepare yourself for the fact that they will happen, in the same way that you would have operating costs for running a business.
Shifting your thinking in this way will help you view losses as something that can be managed, rather than as something to avoid. Depending on how you work, it may be helpful to find a mentor – someone who has more experience in trading – to help you adjust your mentality.
How to lose a trade properly
Once you have accepted that, no matter what, you will lose some trades, you will be able to start planning to minimise your losses as much as possible. You’ll need to figure out how much you are comfortable with losing on any one trade, so that you can set a stop loss based on the current market trends at that limit.
The next step is to set up your trade, with your tried and tested strategy. If you need help creating a strategy, or to understand more about what makes a strategy successful, it can be a good idea to attend a course to help you learn more about trading. At Trading College, we offer courses for all skill levels, from beginner to advanced, to equip you with all the knowledge you need.
Trust your strategy
The most important thing to remember, once your trade is set up and running, is to trust your strategy. Don’t try and avoid the loss.
Stay true to your strategy and the parameters that you set up. Whatever you do, don’t move your stop loss limit lower and lower in the hope that the trade will become profitable again. All you’ll do is set yourself up to lose more money later on. If you’re on a losing trade and you reach your stop loss, cut your losses and get out of the trade instead of holding on to it.
Being disciplined is important. However, by taking small losses instead of large ones, you will be able to refine your strategy by seeing what worked well and what didn’t, and you won’t be losing all your capital while that happens.
If you’re looking to get into trading, or need some more guidance during your trading journey, we’d be happy to help. Sign up for one of our courses or join us at our ‘Learn to Trade’ Live events. Find out when the next one is here.