Trading in financial markets comes with very high highs, and incredibly low lows. It’s exciting but challenging just the same, requiring a resilient trading psychology to cope with the loss of capital that often comes about as a consequence.
Experienced traders know that profits and losses are both common occurrences and that the key to maintaining longevity in this domain is not to avoid those losses, but instead find a way to cope with them more effectively.
So, what are the steps that you should take to cope with trading losses?
1. Don’t let the losses define you
You must come to accept that losses are an ongoing part of the trading process and not every trade will be successful 100% of the time.
Acknowledge also that not every loss is a reflection of your skills or expertise and that sometimes, there are circumstances beyond our control, like unanticipated market volatilities, that are responsible for positions moving in adverse directions.
By taking a more realistic approach to trading, you’ll be better able to deal with the emotions that losses evoke, and acquire a more objective perspective to the entire experience.
2. Get a handle on your feelings
Trading is a super emotive financial activity, often times leading to feelings of frustration, anxiety, fear, panic and even arrogance and greed. It’s essential to find ways to manage how you feel so that you can better cope with unpredictable market behaviours and potential losses.
This could be something as simple as stepping away from your trading platform for a few minutes to calm your mind, or taking regular breaks during trading sessions to avoid burnout.
It could be engaging in practices like deep breathing and meditation to help reduce stress and foster discipline. It may also look like regular exercise or physical activity or keeping to a healthy diet to keep your body and mind active and alert.
3. Keep a detailed record of your trades
Recording your trades offers the opportunity to later analyse what went wrong (or right). Journaling offers historical insights into the reasoning behind your trades, giving you time to reflect on whether market conditions or emotional reactions were the driving factor for making certain financial decisions.
Further, by having the ability to look back and identify patterns, triggers and behaviours, you can find areas for improvement.
4. Follow an effective risk management plan
Another way to cope with losses in trading is to incorporate risk management techniques that will mitigate or reduce your potential for risk in the first place.
As we’ve already mentioned, no trader wins 100% of the time but a successful investor will do whatever it takes to minimise the risks that incur substantial losses.
This includes setting stop-loss orders or managing leverage more strategically. It may include integrating the 1% rule into your risk management strategy, i.e. investing only 1% of your capital on a single trade so as to limit losses, and improve your longevity as a trader.
5. Develop and use a trading plan
Following on from point 4 above, build an effective plan into which your risk management strategy must be implemented. A trading plan keeps you in check. It provides the framework by which you will trade, keeping you more focused, and less inclined to fall prey to your emotions, particularly those that arise when a trade goes wrong.
Keep in mind however that in the event you experience a series of losses, you’ll likely need to revisit your plan and adjust strategies that may have worked in the past but are no longer effective.
6. Engage with other traders
Trading can feel like a very solitary activity, making it more difficult to cope with challenges or losses as they arise. Another way to mitigate this is to reach out to what is global community of traders, to share experiences, and gain insights from others, in order to learn and grow as a trader.
Acquiring this type of mentorship and support is also a great way to feel less alone, and will inevitably provide you with the emotional support needed to better cope with whatever trading throws your way.
7. Set realistic goals to stay focused
Another way to cope with losses in trading is to set realistic, long-term goals instead of focusing on short-term gains to avoid the volatilities that daily market conditions bring.
By setting goals that are achievable, especially if you’re new to trading with limited experience, will help you avoid disappointment and maintain a more positive perspective to executing positions.
Furthermore, remember to remain patient and acknowledge that gaining expertise takes time and consistency. View every failure as a learning opportunity and celebrate the wins without becoming arrogant or greedy.
8. Invest your time in education
As with any activity, developing the necessary skills and knowledge is vital if you want to improve your potential for success. This stands true for trading as well.
The internet is packed with resources for traders to access, be this trading related podcasts, seminars, webinars, e-books, videos, books, and blogs. Also noteworthy is that most reputable forex brokers provide their traders with the same resources to help them boost their skills and widen their scope of knowledge.
Beyond traditional educational resources, traders can also acquire more practical experience by signing up for a demo account. A demo account will give the investor access to a online platform on which to execute trades.
T4Trade for instance gives traders access to the MetaTrader 4 platform, a world-renowned trading system loved by traders everywhere.
Navigating a simulated trading environment mimicking real market conditions, traders can use virtual funds to enter and exit positions, without putting their own money at risk. They use the account to learn more about technical and fundamental analysis, and also dabble in automated trading, one of MT4’s most sought out features.
Over time, the investor will gain the necessary hands-one experience and develop the skills and most importantly, the confidence, to move to a live trading environment.
It’s clear that coping with losses in trading requires an interplay of different elements. From building a strong trading psychology and maintaining emotional discipline, to developing an effective investment plan that includes robust risk management techniques, there are many parts to dealing with disappointment.
How you deal with losses will to a certain degree determine your success in trading so work on all of these steps listed above to better navigate through the missteps, and become a stronger trader.
Become a T4Trade trader
T4Trader is a popular broker who seeks to empower its traders with the skills and the coping mechanisms to cope with losses in trading. They seek to achieve this objective in several ways.
For one, they offer a great number of trading related educational resources and tools, imparting useful insights, concepts, and strategies to boost their traders’ expertise, knowledge, and confidence. T4Trade’s multilingual customer support team is also on hand 24/5 to answer the most pressing questions that traders seek answers too.
Furthermore, T4Trade offers traders a great choice of trading accounts, catering to the needs of beginner and professional traders. In addition, traders can also enjoy competitive spreads, flexible leverage, quick trade execution, and easy deposit or withdrawal of trades.
Disclaimer: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
