Forex/Day trading is another form of a business that anyone can pursue, although it is a very different business model than what most people are use to. Just like a business, with trading you have to have a goal in mind to what you want to reach financially. With that goal in mind, you have to come up with a plan. With that being said, you also have to keep in mind that there will be losses. Recovering from a bad loss is possible, especially with the next few tips that we'll be sharing with you.
1. Take a breather. Avoid jumping into a new position to "make up for it".
Jumping into another trade or position after a bad loss is something you should never do. This could potentially cause more losses and could blow your entire trade account if you keep jumping just to make up the loss. This is called trading based on emotions which is how 80% + new traders lose money. Take a breather, stop trading for a bit or even the day. Take the time to clear your mind and accept the loss that occurred. And strategize and wait for the next trade opportunity - don’t force it
2. Journal the trade.
What went wrong? How will you avoid this going forwards? These are a couple of questions you should be asking yourself. Reflect on the trade and jot it down. You may start seeing a pattern and it will give you the opportunity to make necessary changes to your methods and strategies when you are trading. Journaling is a great way for recovering from a bad loss.
3. Take accountability.
This loss is over and done with. It's time to move forward. Don't make excuses for what happened. Learn from it! Don't put blame on anyone or anything. Accepting the responsibility will help you become a better trader. You understand and accept the consequences when you are trading and that not every trade will be a winner.
4. Evaluate your risk.
Make it a habit to ask yourself "could I have managed this trade better"? Also consider how much you are willing to risk per trade. Risk management is sometimes overlooked even though it's the #1 required skill when becoming a trader. Planning and strategizing risk management will help with recovering from a loss in the future. An example of a conservative risk management ratio is 2% per trade or 5% per week.
At the end of the day, there's no way to avoid losses. However, losses don't always happen everyday. If you do see a loss on the way, and you know it will not reverse before it hits your stop loss target, best thing you can do is cut your losses early. Another step in risk management most traders overlook, such as leaving the trade open in “hopes” it’ll reverse even when the market says no. It's important to know and learn how to ensure your losses are smaller than your wins and are less frequent, through proper risk management and a good risk to reward ratio (1.5/1 or 2/1). Let these tips help or inspire you to recovering from a bad loss and propel yourself into a highly profitable trader!
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