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Trading Education Posted by Team Topstep June 20, 2018

The Best Way to Bounce Back From a Major Trading Loss


Major trading losses are part of the game. Just ask any futures or forex trader. Every one of Jack Schwager’s Market Wizards has a story of a spectacular loss. And chances are that if you’ve been trading for any time you do too.

But what separates the successful trader from the unsuccessful trader is what happens after the loss. The successful traders say, “never again.”

The unsuccessful traders allow their decisions to be determined by revenge trading. They start seeing red – both in their temper and their P&L.

Instead, here is how you can bounce back and learn from your trading.

Take Responsibility: Your Trades are Your Decisions.

When you make a trade, you are taking a risk. The worst thing you can do is go on tilt and think that the market is out to get you. You will never learn from that mentality.

Common thoughts from a major trading loss:

  • The market has to come back.
  • I knew this would happen.
  • The market is out to get me.
  • I can’t do anything right.
  • I am never trading again.
  • None of those are productive thoughts.

Instead, take responsibility – and… now this is the main part… learn from it. Your trades are your decisions. What went wrong? Did you follow your plan? If so, your plan may need to change, but you should not get down on yourself. You had a bad plan. That’s OK.

If you didn’t follow your plan, why? Was it a complete lack of focus? Are there safeguards you can put in place? Do you need more experience or practice?

When you know what went wrong, you can fix it and move on. That’s what the best traders in the world do – and you can do it too.

Take a time out.

It is hard to keep our head on straight when we take a hit. A lot of times, we want to jump right back in that market and get that $2,000 (or whatever amount) back. Fight that urge.

If you have to, take a time out – either from that market specifically or from trading live markets in general. Go back to sim trading.

Take that break and change your thinking.

When you take a big hit, it’s the market telling you – loud and clear – that your bias was wrong. Take that at face value. John Maynard Keynes famously said that “the market can remain irrational longer than you can remain solvent.” Keynes should know; he had periods of considerable losses in the 1920s and 1930s that took him near bankruptcy.

If you can’t shake your market bias, you need to take time away. What do you like to do besides trading? Do those things so that you can get back to a better mindset in which you can refocus. Go on vacation, resume your favorite hobby, walk in nature.

Once you have a calm and open mind, you can look at where you went wrong in the trade. The results of any given day are out of our control, but what we do, our process, is definitely under our control. Focus your mind back on your process and retake control of your trading.

Back in the game!

When you feel ready, there is no harm in taking practice shots. Take some demo days, test your plan, make some more tweaks.

When you are having better days, go back to live trading!

Start small and work your way up. Confidence comes back when you have taken the time to evaluate, adapt, make smart attempts, and refine.

This may seem like a long process, but it’s not compared to what may happen if you blow up your account. That would take you out of the game for much longer.