Learn How to deal with losses in the Stock Market
A stock market is a place where fortunes are made and lost. Sometimes even the hard work, experience, and strategies look pity in front of luck. But no one should trade based on luck. It’s a part and parcel of trading. But what’s more important is how we react to the losses, which is quite an important one. For new traders, loss in trading will be devastating and it may shackle its beliefs if the loss is too big. But for experienced traders, it doesn’t bother much. An experienced trader has faith in himself and its experience helps in dealing with situations better. But new traders lack belief as they don’t have a track record yet. So, this adds to his/her vulnerability.
The important fact to note is not the loss, but how one reacts to the loss. A new trader takes the big loss on its personal level and gets hijacked by their emotions, which are often quite destructive. Some take more risks in order to cover up the loss without understanding the risk and return of the trade. This may make the situation worse. Few quit the market and vowed never to return it. All these things are a trait of a person with a lower understanding of the market. Such reactions are quite destructive for a long-term trader. It may drive towards erratic behaviour. They even lose the foresight to see the opportunity in other’s trade. Loss can be categorized into two types:
- Immediate: In this, the loss is clear, and the crash is big enough to give a feeling that there is no tomorrow. It is quite rare events occur due to systematic threats.
- Slow: In this process, the loss can be subtle, and the stock price drops over a period of time.
A trader or investor should be aware of both types of threats and better position itself to reduce its impact. Successful traders know the art of handling trading losses. He/She treats losses as an opportunity to learn and improve his/her trading skills. Sometimes a loss prepares a trader for greater trading opportunities in the future and helps in becoming a more skillful trader. These are some of the steps which a trader needs to learn to avoid losses in the future.
1) Take the responsibility of the loss: One of the common traits among the traders is to pass the failure or loss on the economy, exchange, companies, and multiple factors. But this is a bad sign for any trader. If you made the loss, make sure to own it rather than avoiding it. If one avoids it, the chances of committing the same mistake in the future are high. Take ownership of your trade and money. It’s the first sign of a successful trader.
2) Stop Unnecessary trading: If the loss is big, don’t try to jump on the other trade in order to overcome the loss. Take your time to first figure out what went wrong. Assess every bit and piece of your trade and analysis, whether the trade was well planned.
3) Make a plan for future Trades: Before making any future trades, first, make a detailed action plan for future trades. One should make a detailed analysis about the entry of the trade, exit of the trade, and what will be the stop loss. These basic things will make a lot of difference to your trades.
4) Put your loss in perspective: Always be rational in looking into the loss. Some times silliest trades hold the key to future success. Rather than taking your loss emotionally, try to learn the lesson. Getting a perspective on your life when the chips down help restore balance.
5) Be Inspired: Never lose the motivation for learning and developing great skills for good trades. Look into your weakness and use it as a catalyst to improve your performance in future trades. Apart from that, Learn from inspiring traders who despite having faced big loss, turned the tables into their favors. It will act as a moral and confidence booster.
6) Mentally strong: One of the good traits of a renowned trader is that they are mentally very strong. A mentally strong person doesn’t take the loss personally nor do they get excited after making money in the trade. They keep looking for better opportunities. They understand the fact, you can’t time the market all the time, but one must be smart enough to turn the small opportunity into a big one.
*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing