There comes a day in every trader’s career when it all seems to go wrong. A big financial loss can happen in many ways and for many different reasons. It can be sudden or sustained – one bad moment or a run of bad days. Maybe you took your eye off the ball or got overconfident, resulting in a loss of discipline. It may have been that big gamble that didn’t pay off, or simply an unlucky streak. Sometimes technology can fail, or you may be caught in the swell of a wider market or sector-wide crash.
Whatever the reasons, it’s important to bounce back, not just financially and professionally but also mentally and emotionally. In the latter case especially, this isn’t easy. Financial trading can have a reputation as a somewhat macho culture, but hiding our feelings to prove that we can handle it isn’t the best way to deal with anything. Yes, it’s important to get back in the saddle after a big loss, but doing so successfully takes time and focus.
Rebuilding your confidence
It’s possible that it was overconfidence that caused your downfall in the first place, but you still need to get your confidence back if you’re going to trade successfully again. Everyone has their own level of risk tolerance, but being too timid as a result of your loss will definitely harm your future prospects. You need to get back to the level of confidence that worked for you in the past so that you are able to make realistic, informed judgements while not being afraid to follow your best instincts.
The effect of a big loss
If you go back into trading without letting your emotions settle, then your judgement will be affected. You may go in too aggressively and end up losing more. You may also question your judgement too much, and end up selling too soon, or holding on to assets for too long. You might pass on potentially lucrative trades, thinking that they’re not worth the risk, or you may buy too much.
It’s common to feel anger, upset, lack of self-esteem, frustration and fear after a big loss. It’s tempting to wallow in self-pity or self-loathing, or to lash out looking for others to blame. You may even be tempted to quit trading completely.
Fixing your game
You need to master your emotional responses before you start trading again. Take a step back and assess your losses. How bad is the damage? Trading with a serious debt will almost certainly lead you into even greater debt, as the pressure to succeed is too great. Find another way to stabilize your income first before you start trading again.
Look at what you can do to reduce the risk of sustaining such a loss again. This might mean finding a different forex broker, changing markets, backing up your data connections, or tightening your stop losses. Take the opportunity to revise your trading strategy. Does your big loss reveal flaws or blind spots that need fixing? Is your existing strategy suited to current market conditions?
It may be that your losses were caused by events completely out of your control, but even so, there may be additional safeguards you can put in place to minimize either the risk of this happening again or the amount you stand to lose if it does.Better technical analysis may help.Being a trader is about imposing your will and judgement on the market. The moment you start to see it as an unpredictable thing that can’t be tamed or controlled is the moment you should stop trading.
As a trader, you should always be in control of your actions. Looking for excuses or someone else to blame is an abdication of responsibility and will only hurt you in the long run. Own your losses and your mistakes and treat them as a learning experience.
Small and slow
It’s highly advisable to test out your strategy on a demo account for a few days before starting trading for real again. This will help you to regain your confidence and get unhelpful emotions out of your system, without risking real money. Once you do start live trading again, begin at a smaller position size than usual, and take it slowly. Don’t attempt to make all your money back at once. Initially, you should be looking to stabilize your position and to establish a working trading plan once more.
A big trading loss can be a helpful wake-up call. Without such setbacks, we can all become complacent. Deal with the emotional fallout, tweak your strategy, and then get back in the saddle and back in the game.