Smart Steps To Follow After A Bad Trade

This is a guest post by TradeGoldOnline.

The key to any successful investment strategy is knowing the delicate balance between your comfort level and risk against a specified time horizon.

The balance you strike against risk and reward will determine the type of portfolio you’ll have.

Those who start investing at an early age can take a more aggressive approach. This ensures the growth rate of their investments keeps pace with inflation. Those who invest at a later stage in life should take a more conservative approach to limit market volatility on their investments.

Whatever level of risk and reward you feel most comfortable with, a good investment portfolio requires diversification. While this helps reduce volatility over time, no portfolio is guarded against risk or loss.

If you’ve recently come off a big loss or have started experiencing a losing streak, here are some smart steps to get you back on track.

1. Accept responsibility

Was the last bad trade one of your single biggest losses? Was it your first ever significant financial loss? If so, be sure to own it. Losses are part of any investment strategy. It happens to the best investors.

Don’t simply brush it aside. Learn from it. Don’t continue investing until you have. Know what happened and don’t simply blame market volatility for your loss. Take ownership of what happened.

Honestly assessing your actions and determining the consequences of those actions will allow you to make better future decisions. Despite the difficulty of trying to counter how this loss will impact you, learn from it. This will allow you to control your investment trading. It will also keep single losses from turning into a massive losing streak.

2. Stop trading

When a bad trade happens, especially one that has significant impact, stop trading. Seriously. The mechanisms of our ego defense system will immediately use emotion to try and recoup your loss. Trying to find a better trade when you’re emotionally invested will just lead to further losses.

Instead, walk away from trading. Find a way to work out your frustrations. For some, that may be going for a run, and for others a yoga class. Find the method that best allows you to remove negative emotions from your environment.

Stop all trades for a few days. Rather conduct simulated trades to allow yourself to get back into strategic investing. This will clear any psychological and emotional hurdles the last bad trade may have left behind.

3. Refocus

When you have rid yourself of negative emotions, use the bad trade as motivation. Return small when resuming live trading to make sure you do not allow emotions to dictate an attempt to recoup your losses.

A professional approach is to resume trading to get you back to the level of success you were at before your bad trading day. Refocusing after a bad loss means regaining your investment strategy again to start acquiring safe, steady gains.

4. Have a plan

After finding your focus and building up your confidence, make a detailed action plan for future trades. This will allow you to understand what went wrong. Establish limits within your detailed action plan. As most bad trades could be quantifiable because of key market actions, identify the factors within your bad trade that could be quantified for profitable gains.

For example, when the stock market experiences a low, gold value goes up. Indeed, many investors see gold currency trading as an excellent hedge against the weakness of the U.S. dollar during times of economic crisis and inflation.

A bad trade should be used as a catalyst to improve your trading strategy.

5. Put your loss into perspective

Seasoned traders understand that losses are part of a trader’s routine. Bear markets are normal, but so are bull markets. Inexperienced traders may try to trade through the embarrassment and pain of a bad trade.

It’s important to put this loss into a perspective. Remember that a bad trade is simply that, a bad trade. It’s moments like this that self-reflection are important. Bad trading days are also a good time to remind you of the successes you’ve had through both bull and bear markets.

Much like other aspects of daily life, there’s a lesson in financial losses. A bad trade may be the economic loss you need as a trader to thrive into new opportunities.

No trade is without its risks. The potential of a trade is determined by quantifiable key market actions. Regardless of this, loss will occur. It’s how you learn and develop from that loss that will determine your success as a trader.

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