How to Recover from a Stinging Setback in Trading?

Big losses in stock markets can be emotionally draining. Every trader, regardless of experience, encounters trading losses at some point or another. Be it a sudden market downturn or a wrong decision, these setbacks can be quite discouraging.

A study conducted by SEBI found that over 70% of individuals engaged in intraday trading suffered losses during FY23. However, what is essential is to bounce back from such losses and ensure they don’t happen again.

How to Recover from Stock Market Loss?

Here are seven ways to recover loss in trading:

1. Acknowledge the loss and keep your calm

The first step to recovery is to accept it. It is quite natural to feel disappointed and frustrated, but panicking will only make things worse. Take a deep breath and calm yourself. Understand that setbacks are a part of trading, and even the most experienced traders are subject to losses. Acknowledging your loss can help you better deal with the situation.

2. Analyse what went wrong

Once your mind calms down, analyse what went wrong. Did you make a rushed decision, or was there a flaw in your trading strategy? Did external situations change unexpectedly? A careful examination can help you identify the gaps, learn from them, and avoid repeating the same mistakes.

3. Revisit your plan

Success in stock markets depends largely on the quality of your trading plan. If you have faced a setback, it indicates your plan needs adjustment. Return to the drawing board and determine if your strategy is in tune with your financial goals, risk tolerance, and market conditions.

Equally important is to incorporate tighter risk management strategies such as stop-loss to safeguard against significant losses. Diversification and reducing position sizes are some other risk management strategies you could incorporate for protection.

4. Learn from your mistakes

Every mistake allows you to learn and grow. Instead of crying over spilt milk, focus on the lessons learnt. Was your loss because of a lack of research or emotional decision-making? Was it because you overestimated your risk tolerance and followed the herd? Answers to these questions can aid you gain valuable insights and help you grow.

5. Start with small trades

While a significant setback can negatively impact your confidence, start small to regain your composure. Start with a low-risk trade to rebuild your confidence, and once you regain trust, you can slowly move to your usual trading size. Small successes can help you restore faith in your abilities and give you a psychological boost.

6. Stay informed

Financial markets constantly evolve. Various domestic and global factors influence them. You must stay informed about various market trends and economic indicators. These can help you make better decisions. Use reliable sources to stay informed and stay ahead.

7. Have a positive mindset

A positive mindset can help you quickly recover from trading losses. Note that setbacks are temporary, so keep focused on the bigger picture. A growth-oriented approach can help you stay resilient and continue trading with confidence.

How Long Does it Take to Recover from Trading Losses?

There is no fixed timeline in which you can recover from trading losses. The recovery depends on the size of the loss, risk management practices, and consistency in trade execution. Smart and well-controlled losses can be recovered gradually over a short span of time, while big losses may require months or years. Recovery is a slow process, and it focuses on restoring discipline and allowing probabilities to work overtime.

Conclusion

Recovering from a big loss in trading is all about learning, adapting, and growing. Acknowledging your mistakes, analysing what went wrong, and incorporating sound risk management can help you bounce back stronger and avoid losing money in the stock market. While losses in trading are inevitable, with the right mindset and strategies, you can turn them into stepping stones for success.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Neo Research Team, nor is it a report published by the Kotak Neo Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.