Most traders have found themselves looking at their screens only to find the charts are moving in the exact opposite direction to what they were expecting. It is a moment where you should recognize that you were probably wrong at some point, but it’s doesn’t have to be the end of the world as there are some strategies you can implement to bounce back from a massive trading loss.
Here’s what you could do.
Cut Position Size
If your trades have already gone south and your trade signals appear to be wrong, you should immediately cut the size of your positions to avoid further loses. At this point, you should keep in mind that your initial assumptions were probably not correct and, therefore, you don’t really know where things are headed. For that reason, your best choice is to reduce your exposure and live to trade another day.
Use Stop Losses
Stop-Loss orders help you in setting limits for the amount of money you are willing to lose on a particular trade. If you are trying to bounce back from a massive trading loss, stop-loss orders will help you in quickly cutting your positions in trades that are apparently underperforming so you can both limit your losses and use the funds elsewhere, on more profitable operations.
Only Trade the Best Setups
Perhaps your trading loss wasn’t a systemic issue, but just the result of testing a new strategy that didn’t turn out as expected. In any case, if you recently experienced a massive trading loss you should consider trading the best setups for a while until you recoup your confidence, and of course, some of your money. These setups can be the traditional ones like the False Breakout setup or the Reversal at Support/Resistance setup, or it could be your own time-tested setup that has worked well in the past. Stick with those for a while.
Take A Break
Trading can be stressful and trading under pressure is probably a bad idea, especially if you just faced a massive trading loss.
Take a walk, hang out with your friends for a few days, relax a bit, and then get back on the horse and work hard to bounce back successfully.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
