9 pro secrets to get you through the bad: how to handle losing trades

Losing trades are a normal and inevitable part of trading, but that doesn’t mean they’re any less frustrating. The temptation is to deal with the discomfort of losses by not looking too closely at them, and hoping the pain will pass.

However, to really grow as a trader, we should examine our losses, learn from them, and get comfortable around them …

Why do we have to put up with losing trades?

We talk about losing trades being part of trading … taking the rough with the smooth … blah, blah … but why do we have to put up with this?

If you want to have the security of no losses, you can put your money into the bank for a painfully low interest rate. Because we’re looking for superior gains, there’s a price to pay for that – and that price is unpredictability.

Markets are inherently unpredictable and can be affected by a wide range of factors. Even the best traders can’t predict market moves – they can only position themselves in the most advantageous ways.

And that means risk management – this involves accepting losses to avoid running into unaffordable unrealised drawdown.

So, if losses have to be accepted … how do we manage them?

1 • Have a plan in place: Before you start trading, have a plan in place that outlines how you will manage drawdowns. This should include setting stop-loss orders, managing trade size, and having a plan for risk management.

2 • Stick to your plan: Once a drawdown occurs, it’s important to stick to your plan and not deviate from it. This can be difficult when emotions are high, but it’s crucial to remain disciplined and not make impulsive decisions.

3• Don’t overreact: Losses are a normal part of trading, and it’s important to not overreact to them. Remember that the market is cyclical, and there will be periods of decline as well as periods of growth. Don’t get too caught up in the short term.

4 • Examine your risk profile: If losses are particularly painful, it’s possible that you’re overextending yourself risk-wise. Consider reducing your risk per trade – this means it could take longer for you to recoup those losses, but could make your trading journey more viable long-term.

5 • Analyze the cause of the drawdown: Once the drawdown has occurred, take the time to analyze the cause of it. This will help you to identify any mistakes you made and make changes to your trading strategy to prevent similar drawdowns in the future.

6 • Look at the macros: What’s going on in the wider world? Have global economic events or news stories affected your performance? Can you react defensively to these changing conditions? (Be careful to avoid knee-jerk reactions.)

7 • Take a break: Sometimes the best way to deal with a drawdown is to step away from the market for a while. This can help you to clear your head and come back to trading with a fresh perspective. I recommend that you continue to follow your strategy in demo mode – this will enable you to rebuild your confidence without risking any more capital.

8 • Embrace the challenge: Losses can be tough, but they can also be a great opportunity to test your mental fortitude and discipline, as well as learning from your errors.

9 • Keep a long-term perspective: Drawdowns can be difficult to deal with, but it’s important to keep a long-term perspective. Remember that trading is a marathon, not a sprint, and that drawdowns are a normal part of the process.

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