How to Recover from a Bad Trade

How to Recover from a Bad Trade

Everyone has had a day where they were following their well planned system, and then they walked away from the computer only to find a horrible loss waiting to greet them when they get home.

Everyone has had a day where they were following their well planned system, and then they walked away from the computer only to find a horrible loss waiting to greet them when they get home. One bad trade in forex, or any other trading for that matter, has the ability to wipe out days or weeks of hard earned profits for a trader. So how do you rebound from an ordeal so emotionally sickening and almost embaressing?

My experience in the market has provided me with joy and pain that I didn’t know was possible just by playing the financial markets. I have had my share of ups and downs to arrive at the system, and more importantly, the trading mentality that I rely on today. I offer you the following insight into how I cope with a disaster of a trade.

1. Do not get into a new trade just to avenge the one that smited you.

Trading just to be in the market is one of the worst revenge strategies that you could ever employ. Sure you want to get back at the market for doing you wrong. But getting back in the market just to be there is not the way. I stated in a post earlier that ‘the more I trade, the less I trade’. And that statement could not be more true than in this situation.

2. Do not start to doubt your system.

If you’ve been in the game long enough to have a system, then you have probably chosen a system that is profitable in your hands. Many people have a bad day of trading and start wondering if their system is what is wrong. I’m here to bring you some bad news: You’re going to have losing trades. I know you’re surprised. Me? No way! If this game were easy, we would all be rich and I would not be writing this for you to read. Should you tweak your system periodically to continue to learn and improve your trading style? Of course. But don’t let one instince wipe out your market drive.

3. Do learn from your mistakes

I really like my trading style after several years of hard work and long nights. But I am still a humble enough man to know that my mistakes will get the best of me every now and again. I simply take these mistakes, file them in the back of my mind, and avoid them the next time around. This might be something as simple as remembering to look at the 1 day charts, or checking to see if there is any big looming news that I might want to let happen before I get into a trade. Whatever the case, mistakes that are made again will eat at your psyche as much as it will your bank.

4. Remember that there will always be another trade.

Every one of us has used hindsight in a negative way in our trading. I still do this, and I have been working more on my trading psychology than anything these days. The old, ‘I knew I should have entered that trade!’ comment will drive you insane. It will eat at you while you are having dinner with your wife and your mind should be miles away from any kind of currency other than paying for the bill. Forex traders in generally are a greedy bunch of people. I think it comes from having leverage, and knowing that the swings can potentially earn huge amounts of money. This greed makes us always want to be right, and hindsight then creeps in. I can tell you one thing about my trading: If I’m on an unbelievable run of successful trades, I tell myself that it’s too good to be true and I prepare for the lumps that will follow.

5. Remember that you’re not perfect, walk away, and go do something you enjoy.

Some trades if they get away from you could drive a man to drinking. And while the point of any market is to make money so that you can enjoy the fruits of life, no investing should make a man miserable. When this feeling starts to creep in and changes your trading mentality, it’s time to walk away. This is true for most things in life when they become frustrating. When I’m on the driving range trying to fine-tune my swing, there is a certain point where I hit a wall where progress is not being made. I am now mature enough to realize this and walk away before my beautiful day of golf starts to seem like a job. The same has to be true with trading. And this holds true even if you are a professional trader in a 24 hour market. I know a friend that everytime he makes a bad trade takes his girlfriend out to a nice restaraunt. He does this because it is something he enjoys, it gets him away from the trading station, and he realizes that when things are going well he is going to neglect her by not spending the time she needs with him. Fortunately, he is a decent trader, so neither of them have been getting too fat!

I hope this gives you an idea of the damage control methods that I employ after a disappointing trade. What methods do you use to keep you on the right track towards trading success?

So where should I begin? First of all, I am not a professional analyst, I just love to talk investing and have been at it for a few years. I started swing trading my freshman year in college and continued that until graduation with a good bit of success. During my Ph.D. training, I started learning and trading forex, a hobby of mine that is still in place today. I have built a strategy based solely on technical indicators that I programmed into MetaTrader... More