No one likes to take a losing trade, but there are better and worse ways of taking a losing trade. So, here are a few key pointers to help you when you next have a losing trade.
Firstly, was your analysis based on solid principles?
Let’s say you had a bias to go long on natural gas markets due to global demand being set to outstrip supply. You picked your levels looking for a new leg higher, but then the Freeport LNG news broke. The repairs will take longer than previously expected and so there is a sharp drop in natural gas futures.
The reaction in the natural gas market takes you out of the position. Annoying, but this was an unfortunate situation.
Your analysis was basically sound, but unexpected news took you out. Could you have done anything to avoid this? Maybe, maybe not. It’s an ok trade to lose on. However, if your trade was based on guesswork or boredom then that is not an ok trade to lose on.
Secondly, did you take an acceptable risk?
Has the losing trade had a disproportionate impact on your account balance? Were you over-leveraged? Was your risk too high? If it was that why was that? Had you been on a good run? Just had a good winning trade? Or just had another losing trade? What was the reason for taking too much risk if you did? Were you overtrading? If the answer is yes, I did take an acceptable risk, then fine – that’s just part of trading.
Thirdly, accept the loss
Trading involves speculation, analysis, managing risk, and timing. You are not always going to be right. Sometimes you may even get the analysis right, but the timing is wrong. Accept it. This is the nature of trading. You will have losing trades. There is nothing wrong with having losing trades, it is just part of the cost of transactions in financial markets.