Every trader has their fair share of losing trades. Losing is an inevitable part of trading. Yes, the feeling of losing your hard earned money is very excruciating, but it should not hinder you from becoming better. The only thing that makes a trader more successful than others is the way he/she copes up with losses and moves on to improve. For that, here are 6 steps that a good trader should do in dealing with losing trades:
A lot of traders don’t consider a lost trade until they have closed their positions. Remember, a floating loss is still a loss; the only difference is it hasn’t been realized yet. Stop waiting for too long which could lead to more losses. Accept the fact that you already lost your money. Once you’ve closed a lost position, don’t brush it aside or hide from it. Take responsibility for what happened. You are the one controlling your trade so any losses you make is solely your fault.
Learn from your loss
The first thing you need to do after a losing trade is take a break. Take a step back and assess your performance. Figure out what went wrong and where you made the mistake. It would be much better to write down important points and learn from whatever mistake you’ve done so you can avoid it in the future.
Recover from the loss
Do not dwell too much on a losing trade – it does not mean the end of your trading career. After taking a short break, prepare yourself for another and recover from what you have lost. Do not let the past trade become a hindrance to perform better on the next one. Let the losses go and try your best to improve yourself.
Prevent losing more
Prevention is always better than regret after it already happened. Take out the notes you made from the previous loss and use them to improve your trade. In addition to that, stop making risky decisions. Over-leveraged positions and not utilizing stop losses are some of the common mistakes of traders. Avoid doing things that could put you again at a disadvantage.
Follow your trading plan
If you already have a trading plan, then good for you, but make sure to follow it diligently. Another common mistake of traders is following their emotions too much without considering their initial plans. A confident trader can take a position that is too large which could flip in reverse any time, while a fearful trader can restrict his fullest potential, thus limiting the possible gains. Be disciplined and do not waver from your trading plan. That is one step towards becoming a systematic trader.
Practice Risk Management
Do not commit everything to a single trade. Risk only what you can afford to lose. A good idea is to risk less than 5% of your account’s equity. That way, any loss made is not too much that could cost you all that you’ve worked hard for. Make sure to follow these steps in order to hedge against your losing trades.
Read about 10 good habits of a successful trader.
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