How to Recover Trading Losses

Updated: 2017-10-05 13:05:28 | Author: Order Flow Trading Academy

Trading brings out the best and the worst in us, mainly because it stacks us up against the most difficult thing to accept: uncertainty. As humans, we just don't like the fact that even through extensive work and preparation, things can still go sour. What's worse is that things can go sour even when we do the right thing, which can be really difficult to accept.

One trait that allows successful people to bounce back from failure (and recover trading losses) is a resilient mindset. In this article, we're going to explore what separates those that can get back up from those who just get beaten by their situation.

1. Resilience Defined

To be mentally tough is to resist the urge to give up in the face of failure, to maintain focus and determination in pursuit of your goals, and to emerge from adversity even stronger than before. In trading, in particular, know that no trader is immune to drawdown. Sometimes these drawdowns are extended in time or in the amount of money lost. Some traders can bounce back to recover trading losses, while others give up the ghost.

recover trading losses

Rocky: the definition of resilience

The U.S. military is now implementing a resilience-building program, designed by a team of researchers at the University of Pennsylvania, intended to make soldiers as rugged in mind as they are in body. The program’s key message: mental toughness comes from thinking like an optimist. Those that don’t give up have a habit of interpreting setbacks as temporary, local and changeable.

A common resilient way of thinking about a setback is “It’s going away quickly; it’s just this one situation, and I can do something about it.” and this is difficult because the human brain finds it easier to generalize (i.e. “this always happens”, “i'll continue to make the same mistake”) than it does to discern (i.e. “in this local situation something went wrong”).

2. The Power of Positive Thinking

As traders we must resist the pitfall of “catastrohpic thinking”: do NOT assume the worst. We are already bombarded with enough negative information during the day (for example from the news) and we do not need more of it. We need to switch the perspective and get into a positive mindset. This means a balanced, confident view that we can succeed and that we are destined for something better if we dedicate ourselves and work towards it. It does not mean searching for perfection (we have already discussed that here).


Here's the key: you've got to believe it!

Even if positive thinking does not come naturally to you, there are plenty of reasons to start cultivating affirmative thoughts and minimizing negative self-talk.

a) Positive Thinkers can handle stress better: when faced with stressful situations, positive thinkers cope more effectively than pessimists. In one study, researchers found that when optimists encounter a disappointment (such as not getting a job or promotion) they are more likely to focus on things they can do to resolve the situation. Rather than dwelling on their frustrations or things that they cannot change, they will devise a plan of action and ask others for assistance and advice. Pessimists, on the other hand, simply assume that the situation is out of their control and there is nothing they can do to change it.

b) Positive Thinkers have a better immune system: in recent years, researchers have found that your mind can have a powerful effect on your body. Immunity is one area where your thoughts and attitudes can have a particularly powerful influence. In one study, researchers found that activation in brain areas associated with negative emotions led to a weaker immune response to a flu vaccine. Researchers Segerstrom and Sephton found that people who were optimistic about a specific and important part of their lives, such as how well they were doing in school, exhibited a stronger immune response than those who had a more negative view of the situation.

c) Positive Thinkers are more Resilient: rather than falling apart in the face of stress, they have the ability to carry on and eventually overcome such adversity. When dealing with a challenge, optimists typically look at what they can do to fix the problem. Instead of giving up hope, they marshal their resources and are willing to ask others for help. Researchers have also found that in the wake of a crisis, such as a terrorist attack or natural disaster, positive thoughts and emotions encourage thriving and provide a sort of buffer against depression among resilient people. Fortunately experts also believe that such positivism and resilience can be cultivated. By nurturing positive emotions, even in the face of terrible events, people can reap both short-term and long-term rewards, including managing stress levels, lessening depression, and building coping skills that will serve them well in the future.

3. How to become Resilient

Resilient individuals are successful because they push their limits and learn from their mistakes. Babe Ruth is known for his batting prowess, but he struck out nearly twice as often as he hit homeruns. Michael Jordan has said, “I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. Twenty-six times, I’ve been trusted to take the game winning shot and I missed. I’ve failed over and over again in my life. And that is why I succeed.” Ray Kroc, founder of McDonald’s Corporation, is known for valuing determination and persistence over talent, genius and education. Fantasy fiction author Stephen King, has been quoted to say, “Talent is cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work.”

Finally, Josh Waitzkin, national chess champion and world martial arts competitor, highlights that skill mastery can be transferrable. An eight-time chess champion in his youth, he was the subject of the book and movie, Searching for Bobby Fischer. Waitzkin later became world champion in Tai Chi, and is now an author, public figure and benefactor. When asked about his accomplishments, he concluded, “I’ve come to realize that what I am best at is not Tai Chi (or)… chess…(but) the art of learning.


Josh Waitzkin – not your average vision of a tough guy...but he is!


There's the secret: learn how to learn. Learn how to let go of past conceptions, attitudes and beliefs. Build your mind so that you can push forward, whatever the world (or market) throws at you. And then, believe in yourself – and believe in something a little larger than yourself. And be sure to surround yourself with like-minded people, that can understand you and help you get back on your feet. For example, our trading coaches can provide a great support network!

4. Self-assessment

Are you resilient, or do you need to work on it? Answer these questions and see if the majority of your answers are true (good) or false (need work).

To sum up: the number one enemy in trading is your own mind. Your mind can either help you achieve your goals, or it can block you from accomplishing your dreams. You need to discipline your mind, keep it focused on the positives in life, and on the subtle differences that every situation presents. Learn how to bounce back, recover trading losses, and don't get discouraged by setbacks. Become resilient! And don't forget that you don't have to face uncertainty and the curve balls that life throws at you all alone.

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