Large trading losses. How do you overcome them?

Ted Capwell

If you ask any trader what their ideal online trading career would look like, they would answer that they would generate a generous stable income without losing their deposit! This makes complete sense and reflects every trader’s drive for success and material gain.

However, it isn’t possible to trade on the financial markets of any exchange or over-the-counter tool entirely without loss. Every investor regardless of their experience or level of professional knowledge encounters losses, at times even significant losses of capital. In our article, we decided to address problems connected with the loss of capital, not only purely the technical points, but the psychological aspects of trading that arise in such a complex situation. Our recommendations will enable you to overcome not only financial problems but the stress that accompanies troublesome periods of trading as well.

Large trading losses. How do you overcome them?

So, the first step to overcoming the loss of a significant amount of funds is to work out the reasons and factors that lead to the large financial loss.

What factors influence trading losses on the financial market?

When beginning your analysis, the main drivers affecting your trading losses on the financial market, it is worth noting that few of the issues will be purely technical, more likely than not it will all be directly connected the discipline of the investor themselves. What do we typically see in terms of trading habits of practically every new investor? It’s quite simple. After having read through several ads and done some cursory research, potential traders weigh up the possible significant financial gains of trading on the market. Then, what do these beginners do? They open up a live account, often using as large a sum as the private investor can manage, and start trading. There is nothing wrong with trading with a large deposit, the issue is in discipline and their lack of professional knowledge. They have a poor understanding of managing risk and capital. Beginners often begin trading with contracts with increased costs, ignoring the general agreed-upon rules for managing money. Then, as a result of several unfavorable trades, they lose too much and leave the market disappointed. This kind of greed and egotism specifically are the main enemies of inexperienced traders.
The first thing that potential traders need to understand is that every trading tool carries with it the risk of losing capital and a negative expectation of generating profit. Meaning that from the start all contracts should be considered as losing ones, and only after analysis and discipline on the part of the investor can the odds be changed in their favor. In terms of purely mathematical categories, the statistical expectation of profit on the financial market can be simply described by looking at short-term contracts as an example.

This term describes the difference between the level of profit and loss in a trading operation. If we were to take the typical parameters of a short-term contract, its profitability would be 85% and the risk of loss would always be 100%. So, from the start, every contract carries with it a 15% loss, thus a negative expectation of profit. This indicator has a significant impact in these conditions on the final financial result. To give the most example, with $100 dollars of capital, traders use $30 dollars in trading positions. As a result, an inexperienced trader can open no more than 3 positions! After even 2 losing trades, the investor will lose a critical amount of their capital and be unable to continue their market activity.

Money Management

Traders use money management as their primary approach to decreasing losses. It is a set of restrictions limiting the cost of contracts. The simple principle of striking the optimal balance between the total capital and the cost of a contract is applied here. Typically, the following indicators are used in money management:

● No more than 5% of your total capital should be tied up in contracts
● When trading with meager means, only place trades that require minimal investment

When you trade with minimum contracts you protect your capital and add security to your trading regime without disrupting the optimal dynamic of profit growth.
However, money management isn’t the only way to limit your losses. There are some purely technical points of trading that work great, such as strategies for analyzing market indicators and forecasting rate movement.

Trading systems

In order for your account to grow stability, as a trader, you need to adopt a system of analysis. An important aspect to consider is the effectiveness of the analysis approach, it shouldn’t be lower than 65%. These days it isn’t hard to find a good system, as there are hundreds of effective strategies available online.

So as to best maximize the profitability of your trading operations, you need a full range of analytical approaches. We recommend adopting various technical analysis approaches, such as indicator format systems, trading strategies on a clear chart, and a variety of trading approaches to trends. The wide variety of trading systems available enable you to generate profit under completely different market conditions and from the vast majority of assets.

Invest with a variety of tools

More often than not, the main problem is that investors trade with only one asset! This can be explained psychologically. The issue is that, when you trade with only one tool, you begin to have the illusion of understanding the market of that specific tool, that, according to traders, you can use as an effective approach to rate movement analysis. It is a lot more complex than it seems. The chaos of the market and the combination of the different drivers that influence its movement aren’t open to guesswork or simple prediction. At the same time, by only trading one asset, you take on the highest level of risk. Therefore, it is recommended that you create an investment portfolio with diversified risk to trade most effectively. In practice, it’s all fairly simple to apply. You, as the investor, should use various assets, lots with a wide range of profit indicators and expirations, so as to create a portfolio of trading rates.

When you learn the difference between volatility trading tools and forecasting rates, you’ll have an investment portfolio with diversified risk, in which profitable contracts neutralize the losses from other trading positions.

Hedge Your Contracts

Hedging, or technical insurance of trading positions, is a very effective method for managing losses and earning additional profit. This is done with a reasonably wide range of methods:

● Trade on assets that have a high level of correlation. In this situation, related trading tools are used with one another. As a simple example. take currency pairs. So, for example, when there is growth in the EUR/USD, we often observe a decline in assets, such as the USD/JPY and the USD/CAD as well. Therefore, when opening lots on the EUR/USD pair, we can, with the help of related assets, gain insurance against losses from the contracts below. Using this approach enables you to not only decrease trading losses but also to gain additional favorable positions.

● Averaging is a logical method of forming lots on main trending and locally-correcting market fluctuations. Lined up, the price rates form persistent trends, as well as local corrections. These various fluctuations specifically enable you to apply approaches like averaging positions. It all works fairly simply. Let’s assume that you bought, but the market began to perform a local correction down. When the correction takes place, open several trades in the direction of the main trend. As a result of the price returning to the direction of the trend, you gain a series of profitable positions and a handful of losing contracts or may escape without any losses. In any case, the general indicator in terms of results will be positive.

● Martingale, a purely mathematical system for minimizing loss, uses a simple approach for doubling your total trade lot after a losing position. Therefore, to double the profitability of our position, we decrease the loss of the first contract and expect an increase in capital. It is worth noting here, that Martingale is a fairly controversial system and one which professional traders aren’t all that sympathetic to. The reason for this is Martingale’s complex working algorithm. The problem for inexperienced traders lies in the significant increase in the original trading lot against the backdrop of an increased total number of contracts. In such cases, investors experience critical losses of capital. Therefore, when using Martingale, it’s vital to err on the side of caution.

Let’s go through the conclusions thus far. In trading, there are many technical drivers and factors that influence financial losses. However, at the same time, there is a wide selection of approaches available for resolving such problems. In order for them to be effective on the financial market, first and foremost, you need to thoroughly study all the available systems for managing risk and limiting losses, and follow them without exception.

That being said, as we noted at the start, it is impossible to completely avoid losses! If you experience financial loss and your continued presence on the market is threatened, we have the following recommendations for you.

How do traders get over a loss?

If you experience a significant loss of capital when trading, we recommend that you take the following approaches that will enable you to resolve any psychological problems or difficulties:

Change your attitude to losses!

Every person’s experience shows that disappointing results or events build vital professional skills. It is impossible to trade on the financial market without making mistakes, although these mistakes give you invaluable experience for future activity. Change your attitude to loss and consider it as the price for experience and possible future profit. By doing this, you will set yourself up well on a psychological level for trading.

Communicate more often with fellow traders!

The vast majority of traders to try hide it when they experience losses! This further escalates psychological problems. Return to professional spaces, confide in your fellow trader about your problem and ask for their advice! The most effective thing to do is to collectively analyze your mistakes with fellow traders. This not only unburdens you psychologically, but it also creates the possibility of adding to your own approaches to trading

Don’t rush to repeat your mistakes!

After having experienced a large loss of capital, the vast majority of traders start to make even more mistakes. Yes, of course, the emotional dynamic of trading is important. It isn’t worth trading when you are extremely frustrated or distraught. If you immediately replenish your account and start to frantically try to regain your losses you’ll just lose even more! The first thing you need to do is calm down. Analyze your mistakes, come up with a new trading plan and set goals. Follow the steps in your plan and test out your strategy on a demo account. Then move on to trading on the market with minimal capital. Only a calm mild will allow you to rationally evaluate your strengths in trading. You’ll be rewarded with increased profits by doing so.

Don’t ignore customer support!

Despite the close partnership with various trading platforms, the vast majority of traders view them as the enemy. This is typically reflected in the unwillingness to work with customer support and ignoring any recommendations from them. This is wrong. The opportunity to talk with professionals opens a wide range of possibilities for stabilizing trades’ mental state. If you have partnered with a quality professional platform, then don’t treat customer support representatives as your enemy. Be friendly with company managers and they will give you vital recommendations for improving your trading.

Get help!

Without a doubt, if you can tell that your problem isn’t resolving itself and your problems with losing funds are out with typical psychological outlook, you need to seek help from a specialist. Understand that many view trading as a form of gambling and many investors are simply taking too much of a gamble. Your complex state of mind could become a sign of a more serious. Therefore, don’t hesitate, seek professional guidance!

Psychology plays an important role when trading on the financial market. This is why investors who keep their cool in stressful situations, such as serious losses of capital, can highly influence their future market activity. Be careful and always be honest with yourself about your mental state and technical abilities. The market isn’t forgiving!


“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”