Thank you for visiting

Unfortunately our website and services are not available for US residents. We wish you all the best in your quest!

How Successful Traders Learn from Losses |
This website uses cookies to ensure you get the best experience on our website.
16th Oct 2020

How Successful Traders Learn from Losses

Trading the financial markets is not without risks. Every trader, even the most successful, face losses from time to time. This could be due to a lack of discipline, technological malfunction or just an error in judgment. Unfortunately, facing a series of losses can be very disheartening, leading 80% of day traders to stop trading within the first 2 years.

However, the key to long term trading success is using failure to learn and grow in the market. As Napolean Hill once famously said, “Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit.”

So, here are 4 things that traders can do after a loss to ensure that they learn for the future and continue to grow.
A trading journal might seem time-consuming and tedious at first. But it can be highly beneficial. A trading journal allows you to learn from both losses as well as gains. It is basically a record of everything that happens during a trade. It should contain records of the instruments traded, dates, losses, profits, size of the trade, expiration time and even the performance and emotions of the trader. 

This can help you identify any underlying patterns that could lead to errors in judgement or missing out on key signals. For example, you may realise that you set up the stops and limits at the wrong points or you are entering trades that are too high risk. Analysing past trades through a trading journal can help you prevent these mistakes from recurring.
Trading can be a rollercoaster of not only prices but emotions as well. But to be successful, these emotions need to be kept in check. The two emotions that play a major role in trading are greed and fear. After a loss, fear may take control of future trading decisions.

In case of a losing trade, you might give in to fear and start panic selling. Fear can also lead a trader to prematurely close out positions or not take any risks. There can also be regret about missing out on a trade that could have been profitable. This could lead you to jump back too soon after losing. But in trading, it is best to treat losses as just another day in the office. Even after a loss, it is best to make decisions based on robust analysis.
After a big loss, the first thing to do is to accept your mistake. Do not brush it aside, hide it or blame others for it. After that, it is a good idea to analyse your trades and where you might have faltered. Ask yourself if you properly implemented the trading plan or if you diverged and for what reason. Did you take on too much risk? Did you hold a losing trade too long, hoping that it would turn into a winning position? From this analysis, you can adjust your trading plan for the future.
Confidence plays a major role in the financial markets. But after a big loss, confidence can be really low. This may lead a trader to skip trades or be overaggressive. Therefore, it is best to ease back into the game gradually. Try trading using a demo account for a few days and test your plan. As your confidence grows, start taking small positions in the live market. As you regain confidence, you can slowly increase position sizes.

Warren Buffet once said that there are 2 rules in trading: Rule 1: Never lose money. Rule 2: Remember Rule 1. 

But even Warren Buffet has faced losses. What he did differently was that he learned from these failures and went on to become a trader we all love to quote. So, put aside unrealistic expectations and formulate strong trading strategies, based on objective analysis.