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How to Handle Losses in Trading

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Avatar for FizzOnMyJayce
Written by   2
2 months ago

Hello everyone, today i would like to talk about losses in trading and how to deal with them. It’s impossible to trade or invest and not find yourself into a losing position. That’s just the way things are. And a large trading loss can be devastating, not only financially, but emotionally. Losses are a natural part of trading, but that doesn't make them any easier to handle. We don’t like losses, and we’ll do almost anything to avoid taking them. 

 

The number one thing I want to make sure of when I have a losing trade is that I didn't fail in the execution, because that still can happen right like you get in late or you take a signal that's not really that good. If everything is correct with your trading plan which should define where you will enter and exit a trade, then you should be fine. In a situation like this, where you have a defined trading plan there is nothing to contemplate because you should be confident that in the long run, your strategy will bring you good profit.

 

It is also crucial to define your potential losses before you enter any trade. Define your possible loss, or risk, in comparison to your possible reward, or profit. It is also important that you don’t take losing personally. Traders who put their self-esteem on the line with their money are especially vulnerable to strong, unpleasant emotions when they lose. But if you take a more carefree approach, and think, “It is not personal; it isn’t a big deal in the end,” then you will be able to accept a loss and take quick, decisive action.

 

You should also analyze each loss. It is not an enjoyable activity to do, but all successful traders would say that honest and brutal analysis of each loss is what helped them recover and turn their trading for the better. Analyzing losses can help you improve your trading plan which can only make you a more profitable trader in the future.

 

Also, it is good to realize that trading is an endless process of learning. Just like in real life you learn more from your mistakes than from your victories. Losing money should motivate you to look improve your strategy, read more about trading and become more disciplined. Next time, you will have a better idea of what happened and where you went wrong and can open up room for improvement and start stacking the odds in your favor.

It sounds obvious, but putting your focus out of making money and into enjoying the process, will keep you on the right track and more likely to end up in profit.

 

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Hope you found today’s article helpful. Have a nice day :)

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