"How To Recover From A Big Trading Loss" is a brief step-by-step guide to recovering from a tough trading loss. To be clear, you will lose in trading. More accurately, you will have losing trades. But remember… A losing trade does not a loser make you…


You fail to respond correctly to the loss or losses.

Your simple trading strategy should, by definition, account for relatively small losses. That is, losses that are small when considered next to your winning trades. If your strategy isn’t profitable notwithstanding the losses, it’s not a strategy that you should be trading.

In the rest of this post, I want to address the other trades. You know… the “not so relatively small” trades.
  • The trades that fall outside your simple trading strategy/plan.
  • The trades where your discipline fails you…
  • The trades that you maybe shouldn’t have taken in the first place.
Here are 5 steps you should take after suffering what feels like a debilitating loss. They’re not necessarily in order of importance… that’s more of a personal thing. But they are all time tested by yours truly.

They work.

1. Accept The Responsibility: You created the loss… and made it bigger than it should have been. Whether by not entering a hard stop loss, moving the stop loss you DID enter or executing a bigger lot size than your position sizing algo allows, both the nature and the size of the loss are yours. Own it. Don’t brush it aside, hide from it, or blame your broker, the “smart money,” or the trading gods for your large loss. When you take ownership, it’s the first step in controlling the most important tool in your trading… you.

2. Keep Trading: This is contra to what most trading coaches and gurus suggest. In their program you’re suppose to “take a break to figure out what went wrong… assess what happened by reviewing events carefully.” That is the EXACT WRONG approach. Assuming your trading strategy is well tested and you believe in it, the worst possible thing you can do is send your subconscious the message that this incredible asset [your trading strategy] is broken. That is the exact message that you send if you stop trading to “figure it out.” The better approach is to continue trading… “next trade.” Granted, a big loss causes all sorts of inner conflict—the need for revenge, fear of the market, anger, frustration, self-hate, market-hate—it’s not a short list. After a big loss, there's no way to trade with a clear head, so the best thing to do is execute your proven strategy perfectly.. Reevaluating and/or tinkering with your trading strategy is the LAST thing you should do. Your belief in the strategy may never recover. It’s true, you should isolate and eliminate the root cause of your outsize loss… but it must be done while “the show continues.” There’s little worse in trading than missing the next great signal your strategy produces because you’re lamenting a previous loss. And, by the way, that will only exacerbate your inner torment.

3. Have a Verified Simple Trading Strategy [VSTS]: Speaking of the simple trading strategy in which you want to maintain your belief… make sure you have one. How do you get that? Beg, borrow or steal… well, actually, don’t steal, but you get my point…a simple trading strategy. You need to obtain and verify a simple trading strategy with positive expectancy before anything else. Once again, trading gurus will tell you that you must have a detailed, simple trading plan before wading into the markets. It’s true, you do need a simple trading plan, but you can wrap any old trading plan around a verified, simple trading strategy and come out a winner. This is because the strategy is the core of the trading plan… it’s the reason for its being. It completes the trading plan. The same can’t be said in the opposite direction. The trading plan is a should… The VSTS is a must.

4. Review/Update Your Trading Notes: When you suffer an outsize trading loss, it’s usually for 1 of several reasons.
  1. You never should have taken the trade
  2. You traded too large relative to your account size… and outside your simple trading strategy
  3. You didn’t have a stop
  4. You moved your stop
These causes all have 1 thing in common… they’re the result of a breakdown in your discipline… a slip of the old emotional capital. One of the best ways I’ve discovered to prevent/resolve these kinds of errors is to tighten up your trading journal. Recommit to journaling every trade…it’s more than just a hack. Make sure each entry has all of the detail required to lay it out…go back and fill in the missing details from previous trades. This exercise reminds you of exactly how your simple trading strategy works… with the added benefit of refreshing your focus. Try it… it works.

5. Maintain/Regain Perspective: You [and your trading] are more than any single trade. One trading loss — even a large one, does not and should not define your worth. Getting perspective on your life when the chips down helps restore balance so you can take steps to continue trading. Use this loss as motivation for learning and developing your skills for better trading. The best professional athletes become excited when they discover they have a weakness in their game. They use the weakness as a catalyst to improve. You should too.

Hope it helps.