Professional traders define RISK FIRST. It’s important to define how much you are willing to lose before you enter a trade. AND STICK TO IT.
You should also try not to take losses personally. You are powerless what happens AFTER your perfect entry – you did have perfect entry, right??
After a loss, it’s helpful to analyze what happened. This can help you improve your strategy and become a more profitable trader in the future. Remember, trading is a learning process and you can learn from your mistakes. Losing money should motivate you to read more about trading and become more disciplined. If you focus on enjoying the process instead of just making money, then you will be more likely to end up in profit.
Trading is your job, career and passion, and losses are just a “normal” part of doing business. You can’t get too emotional about them or it will lead to more mistakes.
TIP: If you get TOO emotional after a loss, you leveraged too big AND/OR did not let your stop loss do its job. Its job is to PERSERVE your emotional and mental capital FIRST!
There are good losses and bad losses. Good losses are when you have a plan and you stick to it. Bad losses are when you don’t have a plan or you don’t follow your plan. Good losses can help you learn and improve, but bad losses are just wasted money. If you have a bad loss, think about why it happened and try to learn from it.
If you have a good loss, ask yourself what you could have done differently to make the trade better. It’s also helpful to think about how you were feeling when you made the trade. Sometimes our emotions can impede making good decisions.
It’s also important to know how to recover from losses. Take a break if you need to and come back to trading when you are feeling calm. Trading when you are stressed or upset usually leads to more mistakes. It’s also a good idea to lower your trading size if you are feeling uncertain. Trading with a smaller amount of money can help you get back on track without risking too much.
1. Take a loss = take a break. Sometimes 20 minutes, sometimes 20 days!
2. Took a loss = trade SMALLER. NOT Larger! Smaller. Make it back with “base hits”, not ONE MONSTER trade.
3. Take a loss = analyze trade. Step back. Was your entry perfect with GOOD reason? Was it a perfect loss? Did you compound the loss by adding more leverage? Did you have a stop loss? Did you move your stop loss?
4. NEVER add to a loser.
5. There will be another great entry soon. No big deal. Just wait it out.
6. Personally, I NEVER let a winner become a loser. I refuse. I’d rather take a break even and SAVE my mental and emotional capital. A break even is a WIN in my book.