Trading is all about making profitable trades, but it is also how well you cope with losing trades and how you bounce back after a significant trading loss. No one wants to talk about losing trades because most of the time that’s very uncomfortable. However, losing trades can be a good thing because it can teach you what not to do if you want to succeed in this business.
I’ not going to talk about those smaller trades I’ve lost when I’ve burned out accounts while I was still learning, but I want to focus on those trades that had a bigger emotional impact. When you’re an experienced trader you will still face big losses they can leave a mark on your psyche. This can change you for the better or for the worse. Here are three losing trades and what I’ve learned from them.
Loss #1 – The AUD/USD Big Loss
When you’re focused too much on the potential return, your mind switches off. Most of the time this means that you forget about risk management measures, and too often become overexposed. The feelings of disappointment and anger are very vivid when you lose large amounts of money. The only positive thing is that we tend to learn the most from th4 experiences that leave a profound mark on us.
So, the big trading loss incurred on a long AUD/USD position taken at the beginning of 2018 when the Aussie was moving in a sustained uptrend and broke above the 2017 high.
I was so confident with this trade, and I forgot about following my trading plan and risk management strategy. What I’ve learned is that I’m a better trader to be making a mistake like that. When we making mistakes, the natural inclination is to blame it on other things rather to actually figure out what went wrong.
The lesson: I learned is always to take responsibility for my own actions, don’t point the finger outward, and instead point it at yourself.
Loss #2 – Being Right and Still Losing Money
I want to speak about my gold losing trade. Everything was lined for a perfect multi-day long trade. My mistake, however, was to manage a daily trade on the intraday charts and then I got distracted by the day-to-day noise and stopped out of that position.
I bet everyone has had one of those trades. When you’re right about the market direction, but somehow you still manage to screw up the trade and lose money. When you’re under pressure your attention narrows, and you focus on just one thing and forget about paying attention to the others.
The lesson: Always stick to the time frame you based your trades on and don’t try to micromanage your trades.
Loss #3 – Always Start Small after Multiple Trading Losses
The third lesson I’ve learned from my trading losses is always to try to get back into the market by trading smaller positions. Especially after a series of consecutive losses. This has helped me enormously to gain my confidence back. Not only that, but it has also helped me to protect my account balance from those time periods where either my trading strategy doesn’t perform well, or simply because I don’t have the right feel of the market ebb and flow.
The lesson: In hard times is important to start trading smaller position sizes on the first day after a trading loss.
If you’re not analysing your losses you’re never going to learn from your failures. Take time to note what happened during losing trades in your trading journal as that’s the best way you can learn from mistakes and figure out what the problems were.