Home/Blogs/How to recover from a Big Trading Loss?

How to recover from a Big Trading Loss?

stock market
Published Date: 08 Jul 2024Updated Date: 27 Dec 20246 mins readBy MOFSL

If you know anything about trading in the markets, you must know that it requires patience more than anything else. Trading is one of the riskiest professions, as you can make Rs 1 crore one day and lose more than that the very next day.

These losses could result from technology failures, lack of discipline, or you could be simply losing a little capital every day.

However, recovering from a major loss isn’t complicated, and you can achieve this through a few straightforward steps. The real challenge is to repair the lost confidence.

To succeed in trading, you must have confidence in your trades. Overconfidence and fear can both be equally detrimental. Balanced confidence helps traders identify market conditions accurately, seize opportunities, cut losses when necessary, and stay out of the market when conditions are unfavourable.

Such confidence can wane after experiencing a series of losses.

After enduring a losing streak or a substantial loss, self-doubt may set in, severely affecting your trading decisions. If you find yourself facing these challenges or have suffered a considerable loss, these strategies will help you regain your footing.

Plan your Bad Days Well

Make sure to set a target for the maximum profit and the maximum loss you will accept on a particular day. This simple rule will help you manage your downside risks as well as the greed factor that often creeps in for a trader.

As a rule, never let a bad day cost you more than you make on an average profitable day. A big loss can cause inner conflict. You feel all kinds of emotions like revenge, fear, anger, frustration, self-hate and even market hate.

After a big loss, it may seem like your world has crashed. So, you must step back and realign your focus.  

There are 250+ trading days in a year. There is no rush to get back in there. Today is not the day to make it all back.

Analyse your Situation

Whether it's a bad few days, your biggest single loss, or a life-altering loss, the first step is to stop trading until the issue is resolved. Trading with huge debt in the hope of recovery only adds pressure and can worsen the situation.

If you've drawn down your account, had a losing streak, or suffered a big sudden loss, you're still in the game, just a bit beaten up. You can still make a comeback. Accept that losses can happen and take responsibility for your trades.

Excuses for losing trades are common, but as traders, we must accept all risks. Until you learn from your mistakes, history will repeat itself. Understand what you could have done differently to prevent the loss and take steps to fix it.

The first step is to step back and analyse the situation. Identify the behavioural pattern that triggered you to act a certain way, accept it, and then fix it.

Go Back to Basics

Confidence comes from doing difficult tasks and improving over time. When you started you might be overconfident, but the market corrected that. Over time, you built, tested, and practised your trading system and eventually used it successfully.

After a big loss, return to basics. Focus on your trading plan and its implementation. Reconnect with what attracted you to trading: building or learning a consistent money-making strategy.

Trading is challenging, so embrace the difficulty. A big loss often signals that you've drifted off course and need to refocus.

Rebuild your Confidence with a Demo Account

After a big loss, confidence can be low, which means your mind might not be right for trading. Without a clear head, you might skip trades, panic out of trades (trading not to lose), or be highly aggressive in order to get back to your old winning ways quickly.

None of this is good.

Take a step back, and trade in a demo account for a few days. If you have been losing, you will likely save yourself money. Since it's not real money, you can strategise your trade plan in this demo account until you feel that you can be back in the game. 

Restart with a Demo Account 

After a few winning days in the demo account, start trading with real money, but use small position sizes. Increase your position size slowly as you gain confidence. If you lose, it's easier to handle small losses.

Ease back into live trading slowly. Spend a few days in simulation if needed, and incrementally increase your position size over about a week. Rushing can lead to more losses and hinder recovery.​​​​​​​

Final Thoughts 

If you've taken a big hit, stop trading for a couple of days. When you return, review and adjust your trading plan. Trade in a demo account to build confidence, and only switch to live trading after a few profitable days.


 

Financial Calculators: SIP Calculator | SWP Calculator | Compound Interest Calculator | EMI Calculator | FD Calculator | Retirement Calculator | Option Value Calculator | Inflation Calculator | Lumpsum Calculator

 

Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price

 

You may also like…

Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C