How to cope with losing money while trading
Trading is a probability game. It’s different from gambling because the actual probability shifts with outside conditions, but also with your own knowledge of the market you are trading in. However, just like with gambling, there will always be times when you will lose money, no matter how much you study and plan for the worst. In fact, trading can even make you lose a lot of money quickly. This sense of loosing can make you quit trading, pull back your investment, eat your loss and never try your luck at it together.
If you came here, the harm is probably already done and your trading account i already well in the red. However, here are some things you should ABSOLUTELY do before taking any further action.
Disclaimer: Please keep in mind that this website is published for entertainment purposes, and does not constitute or be used as financial advice. As all information you can read on the internet, it’s up to you to do your own due diligence regarding tools, actual rules and techniques and decide what you can use and how you can use it.
Take some time to relax before taking action
It’s easy to get overwhelm when getting lot and lots of big red numbers on your trading screen. However, keep in mind that all these losses aren’t real losses until you sell the underlying asset. If you bought a stock of any given company, even if that stock loose 90% of its value overnight, keep in mind that you still own part of the company, and that company will continue to work for you by producing value for its customer !
So with that in mind, your best course of action is probably to just do nothing. If you do not to sell anything at all, you’ll still be invested in a company that will produce value and will have a chance to bounce back in the future.
Take for example the 2020 Covid-19 market crash:
If you bought almost any stock during the whole 2019 year, you’ll have had all your profit wiped during the first 15 days of march 2020. This is a complete market crash. You’ll even had lost quite a bit of money of your initial investment! If you panic sold at the worst time, you’ll have lost all of that money, forever. Poof just like that It’ll be gone. That why taking any action in panic is the worst thing you can do right now!
To understand why, let’s fast-forward 12 months:
Guess what! The market recovered, and even almost doubled since covid 2020 crash. That is, if you just done nothing, held the stock through the whole storm instead of panic selling, you’d have made all your loss back, but also doubled your investment on top of that ! Quite a nice gift for some patience right?
That’s why panic selling is the worth thing you can do especially in case of a market wide crash ! If you trusted any company to generate value with your money in the past, you can probably trust it to continue generating value in the future.
What was your plan? Stick to it!
Before trading any stock, you have to do your own research. You have to build confidence in that company values, assets, and direction. If you had confidence before that the company will generate profits in the future, then does the current crash change that vision? Does the current fear have changed something so drastically that the company will be unable to survive and produce value in the future? Most of the time, fundamentals don’t change as drastically as the stock market make you think it does.
With that mindset, you can be more cold headed and see the real value behind the market value ! With that in mind and as long as you trust a company long term, then if a stock goes up, then great, your conviction was right, but if the stock dips, then great too, as you can buy more at a cheaper price. As long as your confidence was well-placed and realize itself, you can’t lose money long term in the stock market with that way of thinking !