How to Start Trading Again After a Big Loss

How to Start Trading Again After a Big Loss

Start Trading Again – Certain of Uncertainty

A common saying in trading and investing is that the only certain thing in the market is uncertainty. Even with all the technological and statistical tools available, no one is really able to predict how the market will move in the next hour, day, or month. It’s simply not possible. As a result, every person losses money at one point or another. When I was starting out, I lost more than $35,000 within a week. Warren Buffet has lost money in the past. James Simmons (who I believe is the best trader in the world) has had down years in the past. As we speak, Carl Icahn is in the red. Bill Ackman has lost more than $4 billion in the past one year. How then do you move on after making a big loss?

#1 – Don’t Panic

The first thing you should do to start trading again after making a big loss is to avoid panicking. Panicking can make you make tremendous mistakes which can cost you big money. When many people make a loss, they immediately open a trade in the opposite side. For instance, if the loss had come from a buy on gold, the trader will immediately open a sell trade. The idea is to reverse the loss by opening the trade in the opposite direction hoping the chart will reverse. This is usually one of the worst mistakes you can ever make. I have tried it in the past and failed. Thing is, when you enter the trade without doing any analysis and in panic, chances are that you will not recover the lost funds.

#2 – Take Time off

I have found this to be a really important decision. When I lose money, I like taking some time off. During this time, I might go to watch a movie or swimming. At times doing all this might be tough especially when the loss is very big. However, it really helps. Spending time away from the market will help you condition your brain in the best way possible. It will help you avoid making silly mistakes.

#3 – Find the Mistakes

The next thing you need to do is to find the mistakes that led to the loss. At times, the mistake could not be your fault. You might have done the right analysis and invested in the best way. However, as I stated before, no analysis method is 100% accurate. If on the other hand you made a mistake opening the trade, I recommend that you identify the mistakes. You can do this by having a look at the chart and comparing the market environment with your trading journal. In the past, I have been a strong proponent for having a good trading journal to help you make proper decisions.

#4 – Be Confident

After a loss-making trade, chances are high that you will have fear opening a trade. Fear can lead to serious mistakes in your trading. As you start trading, you should forget the loss that you made and focus on your present trades. Fear can make you enter or exit a trade at the wrong time. Fear can also make you change your trading strategy. Being confident will make you recover from your losses within a short period of time. The following can help you improve confidence at such a time. One, remember all the successful traders who have lost and recovered from the market. Second, remember that the loss could be a platform to your future success. Third, remember that all traders in the market lose money on a daily basis.

#5 – Remain Protected

Last but not least, as you start trading again, remember to always protect your account. You can achieve this by doing two things. One, all your trades must always have a stop loss. The stop loss should represent the maximum amount of money you are ready to let go. Second, you should always hedge your trade. You can achieve this by opening two trades (with different volumes) of the same asset. The idea behind this is that the chart will always go up or down. In this case, your profit will be the difference between the profit and loss of the trade.

Start Trading Again – Useful Links

  • A Bearish George Soros starts trading again, discover more on WSJ
  • Discover how to start trading as a business, on Investopedia