How to Handle Losing Trades

Are you able to handle losing trades?

This stock trading question comes from Nick A. who asks…

“My #1 challenge in the markets is not getting too low emotionally after a losing trade and maintaining the courage to take the next trade after experiencing loss.”

A great question. In the short term the best course of action is to lower the risk of each trade right down to a level where the trading loss is so insignificant it just doesn’t even register. Over time you will see the account making some forward progress and that should allow a level of confidence to build. If so, slowly increase the risk of losing a trade in very small increments. Until you get back to the ideal risk level. But there is a caveat to this process. Lowering the risk per trade could bring commission drag into play. Don’t fall into the trap where commission drag can’t be overcome. If its an issue then I would recommend using a simulator or paper trading account.

To overcome fear, and this applies to all facets of life, identify the worst case scenario. You should embrace the possibility of losses and that at times things can go wrong. This allows you to be more in touch with the true nature of trading and after identifying the worst case scenario you can implement plans to ensure the worst case scenario doesn’t occur.

How do you handle a losing trade?