How to react to a significant trading loss?
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There is nothing more annoying than to suffer a big loss in your trading. You feel ashamed of yourself, you feel stupid for thinking you could make money easily and the predominant feeling is the desire to get back on your feet. No one likes to lose, that's normal. I'm not talking about a simple losing trade but a heavy loss on your trading account, like -25%, or even much more in some cases. How should you react?
The first thing to do is to stop trading. Shut down your computer, go and do something else for as long as it takes for your irritation to subside. Only by taking a break can you pull yourself together. Look at Euronext. If a stock plunges too sharply, it suspends the quotation in order for traders to come to their senses and become rational again. Once your emotions take control of your trading, you can be sure that the only way out is to raze your trading account.
After a heavy loss in trading, it is therefore important to try to understand why. The price went the wrong way, that's not a reason. If you apply risk management in your trading, a losing trade makes you lose at most 1 or 2%. If you have lost a lot of money, it is because you used too much leverage AND/OR that you did not want to take your losses on a trade. This is a sign that you are not ready to trade using a real account!
The main advantage of a demo trading account is that you can't lose money. Your emotions do not affect your trading. So this is the right place to look for a viable trading strategy. The objective of this strategy must be both to make you earn money BUT also to avoid you losing money! If you are new to trading, your goal should be to last. The longer you last, the better your chances of winning.
It is therefore essential to learnmoney management (risk management). Money management teaches you to adjust the size of your position according to the balance of your trading account, to place your stop losses well (and always use them!!!) and not to open a position if the gain / risk ratio is not good enough. If you do not apply money management when trading, you cannot win in the medium/long term. Anyone can win in the short term, all you need is a stroke of luck. But in the longer term, the only way to generate income from your trading is to manage your risk on all your trades. To make money, you have to accept and know how to lose money.
Once you have mastered this concept, you can start looking for a trading strategy by testing different elements of technical analysis: Chart patterns, Japanese candlesticks and technical indicators. Tell yourself that in most cases, what will make your strategy successful is your ability to implement it over the long term. There is no point in spending years looking for THE trading strategy, or looking for a miracle indicator that will save you every time (I'll save you time, it doesn't exist). You just have to look for basic rules that give you bullish/bearish signals and try to follow them to the letter. The best trading strategies are often the simplest. Test your strategy on a demo account for 1 or 2 weeks and adjust it if necessary depending on the results of this experience. Be aware that a trading strategy is constantly evolving. I was against the use of technical indicators for years. I added RSI a little while ago, mainly to detect discrepancies, and my trading results are much better.
If you suffer a heavy trading loss, that's the question to ask yourself. Without motivation, you get no results. It's a bit like taking out a membership in a gym and going there only once a month. It costs you money but you never get any results.
It’s the same with trading. If you can’t accept that becoming a trader requires a lot of working hours, you are wasting your time and money! In life, everything is a question of motivation. If you don't have time to learn how to trade, find another occupation.
90% of traders are losers. Don't think you'll escape the rule by seeing yourself as better than others. You become a good trader by learning, practising and it is your experience that will make you a successful trader. The important thing at first is just not to lose money. That must be your number one objective if you're new to trading!
Understand the reasons for your trading loss
The first thing to do is to stop trading. Shut down your computer, go and do something else for as long as it takes for your irritation to subside. Only by taking a break can you pull yourself together. Look at Euronext. If a stock plunges too sharply, it suspends the quotation in order for traders to come to their senses and become rational again. Once your emotions take control of your trading, you can be sure that the only way out is to raze your trading account.
After a heavy loss in trading, it is therefore important to try to understand why. The price went the wrong way, that's not a reason. If you apply risk management in your trading, a losing trade makes you lose at most 1 or 2%. If you have lost a lot of money, it is because you used too much leverage AND/OR that you did not want to take your losses on a trade. This is a sign that you are not ready to trade using a real account!
Return to a demo trading account
The main advantage of a demo trading account is that you can't lose money. Your emotions do not affect your trading. So this is the right place to look for a viable trading strategy. The objective of this strategy must be both to make you earn money BUT also to avoid you losing money! If you are new to trading, your goal should be to last. The longer you last, the better your chances of winning.
It is therefore essential to learnmoney management (risk management). Money management teaches you to adjust the size of your position according to the balance of your trading account, to place your stop losses well (and always use them!!!) and not to open a position if the gain / risk ratio is not good enough. If you do not apply money management when trading, you cannot win in the medium/long term. Anyone can win in the short term, all you need is a stroke of luck. But in the longer term, the only way to generate income from your trading is to manage your risk on all your trades. To make money, you have to accept and know how to lose money.
Once you have mastered this concept, you can start looking for a trading strategy by testing different elements of technical analysis: Chart patterns, Japanese candlesticks and technical indicators. Tell yourself that in most cases, what will make your strategy successful is your ability to implement it over the long term. There is no point in spending years looking for THE trading strategy, or looking for a miracle indicator that will save you every time (I'll save you time, it doesn't exist). You just have to look for basic rules that give you bullish/bearish signals and try to follow them to the letter. The best trading strategies are often the simplest. Test your strategy on a demo account for 1 or 2 weeks and adjust it if necessary depending on the results of this experience. Be aware that a trading strategy is constantly evolving. I was against the use of technical indicators for years. I added RSI a little while ago, mainly to detect discrepancies, and my trading results are much better.
Are you motivated to train for trading?
If you suffer a heavy trading loss, that's the question to ask yourself. Without motivation, you get no results. It's a bit like taking out a membership in a gym and going there only once a month. It costs you money but you never get any results.
It’s the same with trading. If you can’t accept that becoming a trader requires a lot of working hours, you are wasting your time and money! In life, everything is a question of motivation. If you don't have time to learn how to trade, find another occupation.
90% of traders are losers. Don't think you'll escape the rule by seeing yourself as better than others. You become a good trader by learning, practising and it is your experience that will make you a successful trader. The important thing at first is just not to lose money. That must be your number one objective if you're new to trading!
