5 Methods for How to Deal with Trading Losses

There are hundreds of articles on how to become a profitable trader … Not quite as many about how to deal with trading losses.

On the one hand, I can see why — who wants to think about losing?

But the hard truth is that losses are part of the game with trading — much more so than with most other professions. So if you’re not prepared, losses can feel personal. They can erode your self-confidence. They can devastate you emotionally.

Accepting trading losses isn’t as simple as “just get over it.” It takes hard work — but it’s worth it. In this article, I’ll share five methods for how to deal with trading losses that you can begin implementing today.

But first…

What Traders MUST Know About Trading Losses

Like with trading FOMO (a topic I discuss in this post), if you want to learn how to deal with trading losses, you need to get comfortable with discomfort.

That means facing the discomfort of the idea that your current reality may not be meeting all of your needs.

The thing is, few people actually have the self-awareness to see this connection.

On a certain level, most people are aware of discomfort around certain triggers. But to truly learn to deal with losses in trading, it’s crucial to be with that discomfort and to be open to recognizing how it impacts how you deal with loss.

So how do you get comfortable with discomfort?

It starts with some emotional endurance training. It’s vital to strengthen yourself emotionally. Like any type of strength training, it can take time.

In my experience, very few cultures advocate or encourage this type of development. So it’s no wonder that for many people, it can feel like being a 90-pound weakling trying to bench press for the first time.

I want to emphasize that it may not be quick or easy work, but consistent effort can and will pay off.

Ready to get started? Here are five methods to try:

(P.S. In my book, “Navigating FOMO and Comfort With Loss,” I explore a number of different exercises to build up emotional ability to deal with losses. Check it out now!)

Accept the Loss

One of the most difficult things for new traders to fully recognize is that losing is an inevitable part of the game.

Once you’re able to set your ego aside and make peace with the small losses, you’ll allow yourself greater opportunities for wins in the future.

— Kim Ann Curtin (@kimanncurtin) October 29, 2020


As I said earlier, trading losses aren’t something that you just get over.

You need to sit and “be with” the hard-to-be-with feelings all the way through to the other side. Stop resisting the loss.

This process will be unique to every trader. But as a starting point, I have a few resources to suggest.

The first is an article by my mentor, Raphael Cushnir: “Two Questions That Could Change Your Life.”

Everyone has experienced setbacks. But if we are closed off emotionally, we can become so scarred over time that it’s hard to keep moving forward. In this article, Cushnir reveals the excruciating pain from a personal setback and how it led him to a higher path.

By examining what we are feeling right now and evaluating our relationship with it, we can in essence lean into that pain and hasten our journey through it.

Keep reading for the next resource…

Learn From Each Loss

Have you heard the term “market tuition”? The idea is that losses can turn into some of our most powerful teachers if we learn from them.

Of course, this isn’t always easy.

For anyone dealing with staggering losses, I urge you to check out my 2-part podcast episode with Charles Harris, featuring guest co-host Shane Dorian. (Check them out here and here.)

In the interviews, Charles shares the story of a devastating loss that decimated his account — and what he learned from it and how it ultimately turned into an experience where he bounced back and regained most of his account in a surprisingly short period of time.

These results are not common, true. But they wouldn’t have been possible at all if Charles hadn’t been able to accept the loss, learn from it, and move on with the knowledge he gained from the experience.

For more viewing on the topic, I urge you to check out my podcast interview with Nate of Investors Underground. In it, he has a unique point of view about learning from your losses — and your wins. Check it out here.

Take Smaller Positions

  • Big positions can lead to big losses.
  • Smaller positions can limit your losses.

I know — it almost sounds too simple. But this is such a common issue with traders that it bears mention.

If you’ve been experiencing a series of trading losses, it may be time to size down.

Sure, the potential gains are smaller. But so are the losses.

When you inevitably do take a loss, a $5,000 loss will feel a lot different than a $50,000 loss.

Sometimes trading smaller is appropriate or instead it’s time to focus on following your own set of rules and sticking to your stops versus focusing on the potential home run.

This is the real foundation of trading. From there, you can scale back up.

Set a Daily Limit

For many traders, it can be helpful to create daily limits on trading losses.

For example, your rule might be “If I lose 2% of my account, I walk away for the day and don’t make another trade.”

This can be a helpful approach if you notice that you chase or revenge trade after a loss. It can give you a much-needed separation from your monitor that can help you put things back in perspective. Overall, what it does is help you manage the emotions of greed and fear of more losses.

Talk to an Expert

If you find that you keep struggling with discipline in your trades, even when you’ve come into the day with a sound plan… It may be time to consider having a coach walk beside you on that journey. (Need tips on how to hire a coach? Check out this post.)

Sometimes getting some outside perspective and having someone to hold you accountable to your plan can make a world of difference.

My team of elite coaches have helped plenty of traders overcome the mindset traps and bad habits that don’t serve them, and like lifting an anchor, watched them finally get unstuck.

If you’re interested in having an experienced coach help you reach your trading goals, please reach out today.

Conclusion

No trader loves losing. However, it’s part of the game, so it’s well worth taking the time to develop some skills to help you learn how to emotionally deal with losses. Armed with the knowledge from this post, you’ve got several actionable steps to take so that you can be better prepared if and when facing your own trading losses.

What’s your favorite method for dealing with trading losses? Do you have another method to share? Leave a comment, I love to hear from you!

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